Correlation Between IShares China and CHIX

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

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

Diversification Opportunities for IShares China and CHIX

0.41

Correlation Coefficient

IShares China  CHIX

Very weak diversification

The 3 months correlation between IShares and CHIX is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding iShares China Large Cap and CHIX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHIX 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 Cap are associated (or correlated) with CHIX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHIX has no effect on the direction of IShares China i.e., IShares China and CHIX go up and down completely randomly.

Pair Corralation between IShares China and CHIX

Considering the 90-day investment horizon iShares China Large Cap is expected to generate 1.39 times more return on investment than CHIX. However, IShares China is 1.39 times more volatile than CHIX. It trades about 0.02 of its potential returns per unit of risk. CHIX is currently generating about 0.0 per unit of risk. If you would invest  2,792  in iShares China Large Cap on September 22, 2024 and sell it today you would earn a total of  250.00  from holding iShares China Large Cap or generate 8.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	28.23%
Values	Daily Returns

iShares China Large Cap  vs.  CHIX

iShares China Large

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares China Large Cap are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, IShares China demonstrated solid returns over the last few months and may actually be approaching a breakup point.

CHIX

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CHIX has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward indicators, CHIX is not utilizing all of its potentials. The new stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares China and CHIX

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

The idea behind iShares China Large Cap and CHIX 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.