Correlation Between IShares Trust and Vident Core

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

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

Diversification Opportunities for IShares Trust and Vident Core

0.98

Correlation Coefficient

IShares Trust  Vident Core

Almost no diversification

The 3 months correlation between IShares and Vident is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding iShares Trust and Vident Core Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vident Core Bond and IShares Trust 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 Trust are associated (or correlated) with Vident Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vident Core Bond has no effect on the direction of IShares Trust i.e., IShares Trust and Vident Core go up and down completely randomly.

Pair Corralation between IShares Trust and Vident Core

Given the investment horizon of 90 days IShares Trust is expected to generate 1.01 times less return on investment than Vident Core. But when comparing it to its historical volatility, iShares Trust is 1.3 times less risky than Vident Core. It trades about 0.07 of its potential returns per unit of risk. Vident Core Bond is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  4,343  in Vident Core Bond on December 3, 2024 and sell it today you would earn a total of  48.00  from holding Vident Core Bond or generate 1.11% return on investment over 90 days.

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

iShares Trust   vs.  Vident Core Bond

iShares Trust

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Trust are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, IShares Trust is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vident Core Bond

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vident Core Bond are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Vident Core is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with IShares Trust and Vident Core

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

The idea behind iShares Trust and Vident Core Bond 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.