Correlation Between IShares Emerging and IShares SP

Can any of the company-specific risk be diversified away by investing in both IShares Emerging and IShares SP 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 SP 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 SP 500, you can compare the effects of market volatilities on IShares Emerging and IShares SP 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 SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Emerging and IShares SP.

Diversification Opportunities for IShares Emerging and IShares SP

0.76

Correlation Coefficient

IShares Emerging  IShares SP

Poor diversification

The 3 months correlation between IShares and IShares is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding iShares Emerging Asia and iShares SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SP 500 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 SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares SP 500 has no effect on the direction of IShares Emerging i.e., IShares Emerging and IShares SP go up and down completely randomly.

Pair Corralation between IShares Emerging and IShares SP

Assuming the 90 days trading horizon iShares Emerging Asia is expected to under-perform the IShares SP. But the etf apears to be less risky and, when comparing its historical volatility, iShares Emerging Asia is 3.0 times less risky than IShares SP. The etf trades about -0.12 of its potential returns per unit of risk. The iShares SP 500 is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1,084  in iShares SP 500 on December 23, 2024 and sell it today you would earn a total of  70.00  from holding iShares SP 500 or generate 6.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	76.67%
Values	Daily Returns

iShares Emerging Asia  vs.  iShares SP 500

iShares Emerging Asia

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Emerging Asia has generated negative risk-adjusted returns adding no value to investors with long positions. 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 SP 500

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SP 500 are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, IShares SP may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with IShares Emerging and IShares SP

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

The idea behind iShares Emerging Asia and iShares SP 500 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.