Correlation Between IShares Nikkei and Legal General

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

By analyzing existing cross correlation between iShares Nikkei 225 and Legal General UCITS, you can compare the effects of market volatilities on IShares Nikkei and Legal General 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 Nikkei with a short position of Legal General. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Nikkei and Legal General.

Diversification Opportunities for IShares Nikkei and Legal General

-0.43

Correlation Coefficient

IShares Nikkei  Legal General

Very good diversification

The 3 months correlation between IShares and Legal is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding iShares Nikkei 225 and Legal General UCITS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Legal General UCITS and IShares Nikkei 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 Nikkei 225 are associated (or correlated) with Legal General. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Legal General UCITS has no effect on the direction of IShares Nikkei i.e., IShares Nikkei and Legal General go up and down completely randomly.

Pair Corralation between IShares Nikkei and Legal General

Assuming the 90 days trading horizon iShares Nikkei 225 is expected to under-perform the Legal General. But the etf apears to be less risky and, when comparing its historical volatility, iShares Nikkei 225 is 1.92 times less risky than Legal General. The etf trades about -0.07 of its potential returns per unit of risk. The Legal General UCITS is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  50,330  in Legal General UCITS on December 29, 2024 and sell it today you would earn a total of  12,510  from holding Legal General UCITS or generate 24.86% return on investment over 90 days.

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

iShares Nikkei 225  vs.  Legal General UCITS

iShares Nikkei 225

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Nikkei 225 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, IShares Nikkei is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Legal General UCITS

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Legal General UCITS are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak essential indicators, Legal General reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares Nikkei and Legal General

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

The idea behind iShares Nikkei 225 and Legal General UCITS 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.