Correlation Between IShares Fallen and IShares Edge

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

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

Diversification Opportunities for IShares Fallen and IShares Edge

0.96

Correlation Coefficient

IShares Fallen  IShares Edge

Almost no diversification

The 3 months correlation between IShares and IShares is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding iShares Fallen Angels and iShares Edge High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Edge High and IShares Fallen 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 Fallen Angels are associated (or correlated) with IShares Edge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Edge High has no effect on the direction of IShares Fallen i.e., IShares Fallen and IShares Edge go up and down completely randomly.

Pair Corralation between IShares Fallen and IShares Edge

Given the investment horizon of 90 days IShares Fallen is expected to generate 1.46 times less return on investment than IShares Edge. In addition to that, IShares Fallen is 1.1 times more volatile than iShares Edge High. It trades about 0.05 of its total potential returns per unit of risk. iShares Edge High is currently generating about 0.08 per unit of volatility. If you would invest  4,715  in iShares Edge High on December 1, 2024 and sell it today you would earn a total of  65.00  from holding iShares Edge High or generate 1.38% return on investment over 90 days.

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

iShares Fallen Angels  vs.  iShares Edge High

iShares Fallen Angels

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Fallen Angels are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy essential indicators, IShares Fallen is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

iShares Edge High

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Edge High are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, IShares Edge is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares Fallen and IShares Edge

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

The idea behind iShares Fallen Angels and iShares Edge High 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.