Correlation Between FlexShares Morningstar and IShares Infrastructure

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

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

Diversification Opportunities for FlexShares Morningstar and IShares Infrastructure

0.22

Correlation Coefficient

FlexShares Morningstar  IShares Infrastructure

Modest diversification

The 3 months correlation between FlexShares and IShares is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding FlexShares Morningstar Global and iShares Infrastructure ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Infrastructure and FlexShares Morningstar 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 FlexShares Morningstar Global are associated (or correlated) with IShares Infrastructure. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Infrastructure has no effect on the direction of FlexShares Morningstar i.e., FlexShares Morningstar and IShares Infrastructure go up and down completely randomly.

Pair Corralation between FlexShares Morningstar and IShares Infrastructure

Given the investment horizon of 90 days FlexShares Morningstar Global is expected to generate 0.74 times more return on investment than IShares Infrastructure. However, FlexShares Morningstar Global is 1.35 times less risky than IShares Infrastructure. It trades about 0.16 of its potential returns per unit of risk. iShares Infrastructure ETF is currently generating about -0.02 per unit of risk. If you would invest  3,611  in FlexShares Morningstar Global on December 22, 2024 and sell it today you would earn a total of  275.00  from holding FlexShares Morningstar Global or generate 7.62% return on investment over 90 days.

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

FlexShares Morningstar Global  vs.  iShares Infrastructure ETF

FlexShares Morningstar

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FlexShares Morningstar Global are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, FlexShares Morningstar may actually be approaching a critical reversion point that can send shares even higher in April 2025.

iShares Infrastructure

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Infrastructure ETF has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, IShares Infrastructure is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with FlexShares Morningstar and IShares Infrastructure

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

The idea behind FlexShares Morningstar Global and iShares Infrastructure ETF 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.