Correlation Between IShares Emerging and IShares Core

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

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

Diversification Opportunities for IShares Emerging and IShares Core

0.62

Correlation Coefficient

IShares Emerging  IShares Core

Poor diversification

The 3 months correlation between IShares and IShares is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding iShares Emerging Asia and iShares Core DAX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Core DAX and IShares Emerging 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 Emerging Asia are associated (or correlated) with IShares Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Core DAX has no effect on the direction of IShares Emerging i.e., IShares Emerging and IShares Core go up and down completely randomly.

Pair Corralation between IShares Emerging and IShares Core

Assuming the 90 days trading horizon IShares Emerging is expected to generate 1.97 times less return on investment than IShares Core. But when comparing it to its historical volatility, iShares Emerging Asia is 4.04 times less risky than IShares Core. It trades about 0.28 of its potential returns per unit of risk. iShares Core DAX is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  15,148  in iShares Core DAX on October 11, 2024 and sell it today you would earn a total of  780.00  from holding iShares Core DAX or generate 5.15% return on investment over 90 days.

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

iShares Emerging Asia  vs.  iShares Core DAX

iShares Emerging Asia

Risk-Adjusted Performance

16 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Emerging Asia are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, IShares Emerging is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

iShares Core DAX

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core DAX are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, IShares Core is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with IShares Emerging and IShares Core

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

The idea behind iShares Emerging Asia and iShares Core DAX 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.