Correlation Between IShares Fallen and IShares International

Can any of the company-specific risk be diversified away by investing in both IShares Fallen and IShares International 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 International 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 International High, you can compare the effects of market volatilities on IShares Fallen and IShares International 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 International. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Fallen and IShares International.

Diversification Opportunities for IShares Fallen and IShares International

0.72

Correlation Coefficient

IShares Fallen  IShares International

Poor diversification

The 3 months correlation between IShares and IShares is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding iShares Fallen Angels and iShares International High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares International 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 International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares International has no effect on the direction of IShares Fallen i.e., IShares Fallen and IShares International go up and down completely randomly.

Pair Corralation between IShares Fallen and IShares International

Given the investment horizon of 90 days IShares Fallen is expected to generate 3.31 times less return on investment than IShares International. But when comparing it to its historical volatility, iShares Fallen Angels is 2.08 times less risky than IShares International. It trades about 0.08 of its potential returns per unit of risk. iShares International High is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  4,727  in iShares International High on December 28, 2024 and sell it today you would earn a total of  203.00  from holding iShares International High or generate 4.29% return on investment over 90 days.

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

iShares Fallen Angels  vs.  iShares International High

iShares Fallen Angels

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Fallen Angels are ranked lower than 6 (%) 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 International

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares International High are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, IShares International is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with IShares Fallen and IShares International

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

The idea behind iShares Fallen Angels and iShares International 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.

Check out your portfolio center.

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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.