Correlation Between FlexShares STOXX and IShares Global

Can any of the company-specific risk be diversified away by investing in both FlexShares STOXX 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 FlexShares STOXX and IShares Global into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between FlexShares STOXX Global and iShares Global 100, you can compare the effects of market volatilities on FlexShares STOXX 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 FlexShares STOXX with a short position of IShares Global. Check out your portfolio center. Please also check ongoing floating volatility patterns of FlexShares STOXX and IShares Global.

Diversification Opportunities for FlexShares STOXX and IShares Global

0.68

Correlation Coefficient

FlexShares STOXX  IShares Global

Poor diversification

The 3 months correlation between FlexShares and IShares is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding FlexShares STOXX Global and iShares Global 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Global 100 and FlexShares STOXX 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 FlexShares STOXX Global 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 100 has no effect on the direction of FlexShares STOXX i.e., FlexShares STOXX and IShares Global go up and down completely randomly.

Pair Corralation between FlexShares STOXX and IShares Global

Given the investment horizon of 90 days FlexShares STOXX Global is expected to generate 0.64 times more return on investment than IShares Global. However, FlexShares STOXX Global is 1.57 times less risky than IShares Global. It trades about 0.1 of its potential returns per unit of risk. iShares Global 100 is currently generating about -0.07 per unit of risk. If you would invest  17,023  in FlexShares STOXX Global on December 5, 2024 and sell it today you would earn a total of  406.00  from holding FlexShares STOXX Global or generate 2.39% return on investment over 90 days.

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

FlexShares STOXX Global  vs.  iShares Global 100

FlexShares STOXX Global

Risk-Adjusted Performance

Very Weak

Over the last 90 days FlexShares STOXX Global has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, FlexShares STOXX is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

iShares Global 100

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Global 100 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, IShares Global is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with FlexShares STOXX and IShares Global

The main advantage of trading using opposite FlexShares STOXX and IShares Global positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FlexShares STOXX 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 FlexShares STOXX Global and iShares Global 100 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.