Correlation Between IShares Infrastructure and FlexShares STOXX

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

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

Diversification Opportunities for IShares Infrastructure and FlexShares STOXX

-0.2

Correlation Coefficient

IShares Infrastructure  FlexShares STOXX

Good diversification

The 3 months correlation between IShares and FlexShares is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding iShares Infrastructure ETF and FlexShares STOXX Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares STOXX Global and IShares Infrastructure 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 Infrastructure ETF are associated (or correlated) with FlexShares STOXX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares STOXX Global has no effect on the direction of IShares Infrastructure i.e., IShares Infrastructure and FlexShares STOXX go up and down completely randomly.

Pair Corralation between IShares Infrastructure and FlexShares STOXX

Given the investment horizon of 90 days iShares Infrastructure ETF is expected to under-perform the FlexShares STOXX. In addition to that, IShares Infrastructure is 1.57 times more volatile than FlexShares STOXX Global. It trades about -0.02 of its total potential returns per unit of risk. FlexShares STOXX Global is currently generating about 0.15 per unit of volatility. If you would invest  5,399  in FlexShares STOXX Global on December 30, 2024 and sell it today you would earn a total of  347.00  from holding FlexShares STOXX Global or generate 6.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

iShares Infrastructure ETF  vs.  FlexShares STOXX Global

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.

FlexShares STOXX Global

Risk-Adjusted Performance

Good

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

Pair Trading with IShares Infrastructure and FlexShares STOXX

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

The idea behind iShares Infrastructure ETF and FlexShares STOXX Global 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.