Correlation Between IShares China and VanEck AEX

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

Diversification Opportunities for IShares China and VanEck AEX

0.54

Correlation Coefficient

IShares China  VanEck AEX

Very weak diversification

The 3 months correlation between IShares and VanEck is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding iShares China Large and VanEck AEX UCITS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck AEX UCITS 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 VanEck AEX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck AEX UCITS has no effect on the direction of IShares China i.e., IShares China and VanEck AEX go up and down completely randomly.

Pair Corralation between IShares China and VanEck AEX

Assuming the 90 days trading horizon iShares China Large is expected to generate 2.63 times more return on investment than VanEck AEX. However, IShares China is 2.63 times more volatile than VanEck AEX UCITS. It trades about 0.15 of its potential returns per unit of risk. VanEck AEX UCITS is currently generating about 0.1 per unit of risk. If you would invest  8,703  in iShares China Large on December 30, 2024 and sell it today you would earn a total of  1,533  from holding iShares China Large or generate 17.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.92%
Values	Daily Returns

iShares China Large  vs.  VanEck AEX UCITS

iShares China Large

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares China Large are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal fundamental indicators, IShares China showed solid returns over the last few months and may actually be approaching a breakup point.

VanEck AEX UCITS

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in VanEck AEX UCITS are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, VanEck AEX is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with IShares China and VanEck AEX

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

The idea behind iShares China Large and VanEck AEX 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.

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 Transaction History module to view history of all your transactions and understand their impact on performance.