Correlation Between IShares Regional and IShares Trust

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

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

Diversification Opportunities for IShares Regional and IShares Trust

0.9

Correlation Coefficient

IShares Regional  IShares Trust

Almost no diversification

The 3 months correlation between IShares and IShares is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding iShares Regional Banks and iShares Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Trust and IShares Regional 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 Regional Banks are associated (or correlated) with IShares Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Trust has no effect on the direction of IShares Regional i.e., IShares Regional and IShares Trust go up and down completely randomly.

Pair Corralation between IShares Regional and IShares Trust

Assuming the 90 days trading horizon iShares Regional Banks is expected to generate 0.19 times more return on investment than IShares Trust. However, iShares Regional Banks is 5.38 times less risky than IShares Trust. It trades about -0.05 of its potential returns per unit of risk. iShares Trust is currently generating about -0.22 per unit of risk. If you would invest  108,386  in iShares Regional Banks on October 8, 2024 and sell it today you would lose (294.00) from holding iShares Regional Banks or give up 0.27% of portfolio value over 90 days.

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

iShares Regional Banks  vs.  iShares Trust

iShares Regional Banks

Risk-Adjusted Performance

11 of 100

Good

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

iShares Trust

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Trust are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, IShares Trust may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with IShares Regional and IShares Trust

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

The idea behind iShares Regional Banks and iShares Trust 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.