Correlation Between IShares Utilities and IShares Healthcare

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

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

Diversification Opportunities for IShares Utilities and IShares Healthcare

-0.49

Correlation Coefficient

IShares Utilities  IShares Healthcare

Very good diversification

The 3 months correlation between IShares and IShares is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding iShares Utilities ETF and iShares Healthcare ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Healthcare ETF and IShares Utilities 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 Utilities ETF are associated (or correlated) with IShares Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Healthcare ETF has no effect on the direction of IShares Utilities i.e., IShares Utilities and IShares Healthcare go up and down completely randomly.

Pair Corralation between IShares Utilities and IShares Healthcare

Considering the 90-day investment horizon iShares Utilities ETF is expected to generate 1.33 times more return on investment than IShares Healthcare. However, IShares Utilities is 1.33 times more volatile than iShares Healthcare ETF. It trades about 0.15 of its potential returns per unit of risk. iShares Healthcare ETF is currently generating about -0.13 per unit of risk. If you would invest  9,714  in iShares Utilities ETF on September 4, 2024 and sell it today you would earn a total of  843.00  from holding iShares Utilities ETF or generate 8.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

iShares Utilities ETF  vs.  iShares Healthcare ETF

iShares Utilities ETF

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Utilities ETF are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively sluggish fundamental indicators, IShares Utilities may actually be approaching a critical reversion point that can send shares even higher in January 2025.

iShares Healthcare ETF

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with IShares Utilities and IShares Healthcare

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

The idea behind iShares Utilities ETF and iShares Healthcare 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.