Correlation Between IShares China and IShares NASDAQ

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

By analyzing existing cross correlation between iShares China Large and iShares NASDAQ 100, you can compare the effects of market volatilities on IShares China and IShares NASDAQ 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 China with a short position of IShares NASDAQ. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares China and IShares NASDAQ.

Diversification Opportunities for IShares China and IShares NASDAQ

-0.36

Correlation Coefficient

IShares China  IShares NASDAQ

Very good diversification

The 3 months correlation between IShares and IShares is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding iShares China Large and iShares NASDAQ 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares NASDAQ 100 and IShares China 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 China Large are associated (or correlated) with IShares NASDAQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares NASDAQ 100 has no effect on the direction of IShares China i.e., IShares China and IShares NASDAQ go up and down completely randomly.

Pair Corralation between IShares China and IShares NASDAQ

Assuming the 90 days trading horizon iShares China Large is expected to generate 2.31 times more return on investment than IShares NASDAQ. However, IShares China is 2.31 times more volatile than iShares NASDAQ 100. It trades about 0.09 of its potential returns per unit of risk. iShares NASDAQ 100 is currently generating about 0.19 per unit of risk. If you would invest  8,530  in iShares China Large on September 28, 2024 and sell it today you would earn a total of  290.00  from holding iShares China Large or generate 3.4% return on investment over 90 days.

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

iShares China Large  vs.  iShares NASDAQ 100

iShares China Large

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares China Large has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable fundamental indicators, IShares China is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

iShares NASDAQ 100

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares NASDAQ 100 are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, IShares NASDAQ may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares China and IShares NASDAQ

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

The idea behind iShares China Large and iShares NASDAQ 100 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.