Correlation Between Energy Resources and IShares Global

Can any of the company-specific risk be diversified away by investing in both Energy Resources and IShares Global at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Energy Resources and IShares Global into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Energy Resources and iShares Global Healthcare, you can compare the effects of market volatilities on Energy Resources and IShares Global and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Energy Resources with a short position of IShares Global. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energy Resources and IShares Global.

Diversification Opportunities for Energy Resources and IShares Global

0.31

Correlation Coefficient

Energy Resources  IShares Global

Weak diversification

The 3 months correlation between Energy and IShares is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Energy Resources and iShares Global Healthcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Global Healthcare and Energy Resources is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Energy Resources are associated (or correlated) with IShares Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Global Healthcare has no effect on the direction of Energy Resources i.e., Energy Resources and IShares Global go up and down completely randomly.

Pair Corralation between Energy Resources and IShares Global

Assuming the 90 days trading horizon Energy Resources is expected to generate 42.15 times more return on investment than IShares Global. However, Energy Resources is 42.15 times more volatile than iShares Global Healthcare. It trades about 0.09 of its potential returns per unit of risk. iShares Global Healthcare is currently generating about -0.11 per unit of risk. If you would invest  0.50  in Energy Resources on September 2, 2024 and sell it today you would lose (0.30) from holding Energy Resources or give up 60.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Energy Resources  vs.  iShares Global Healthcare

Energy Resources

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Resources are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Energy Resources unveiled solid returns over the last few months and may actually be approaching a breakup point.

iShares Global Healthcare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Global Healthcare has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable forward-looking indicators, IShares Global is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Energy Resources and IShares Global

The main advantage of trading using opposite Energy Resources and IShares Global positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy Resources position performs unexpectedly, IShares Global can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in IShares Global will offset losses from the drop in IShares Global's long position.

The idea behind Energy Resources and iShares Global Healthcare pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.