Correlation Between IShares II and IShares China

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

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

Diversification Opportunities for IShares II and IShares China

0.88

Correlation Coefficient

IShares II  IShares China

Very poor diversification

The 3 months correlation between IShares and IShares is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding iShares II Public and iShares China Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares China Large and IShares II 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 iShares II Public are associated (or correlated) with IShares China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares China Large has no effect on the direction of IShares II i.e., IShares II and IShares China go up and down completely randomly.

Pair Corralation between IShares II and IShares China

Assuming the 90 days trading horizon IShares II is expected to generate 1.57 times less return on investment than IShares China. But when comparing it to its historical volatility, iShares II Public is 2.47 times less risky than IShares China. It trades about 0.26 of its potential returns per unit of risk. iShares China Large is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  8,516  in iShares China Large on December 2, 2024 and sell it today you would earn a total of  1,572  from holding iShares China Large or generate 18.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	93.65%
Values	Daily Returns

iShares II Public  vs.  iShares China Large

iShares II Public

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares II Public are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, IShares II may actually be approaching a critical reversion point that can send shares even higher in April 2025.

iShares China Large

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares China Large are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal fundamental indicators, IShares China showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares II and IShares China

The main advantage of trading using opposite IShares II and IShares China positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares II position performs unexpectedly, IShares China 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 China will offset losses from the drop in IShares China's long position.

The idea behind iShares II Public and iShares China Large 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.