Correlation Between IShares SP and AAM SP

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

By analyzing existing cross correlation between iShares SP Mid Cap and AAM SP 500, you can compare the effects of market volatilities on IShares SP and AAM 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 SP with a short position of AAM SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares SP and AAM SP.

Diversification Opportunities for IShares SP and AAM SP

0.76

Correlation Coefficient

IShares SP  AAM SP

Poor diversification

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

Pair Corralation between IShares SP and AAM SP

Considering the 90-day investment horizon iShares SP Mid Cap is expected to generate about the same return on investment as AAM SP 500. However, IShares SP is 1.28 times more volatile than AAM SP 500. It trades about 0.07 of its potential returns per unit of risk. AAM SP 500 is currently producing about 0.09 per unit of risk. If you would invest  2,888  in AAM SP 500 on October 12, 2024 and sell it today you would earn a total of  395.10  from holding AAM SP 500 or generate 13.68% return on investment over 90 days.

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

iShares SP Mid Cap  vs.  AAM SP 500

iShares SP Mid

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares SP Mid Cap has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady forward-looking indicators, IShares SP is not utilizing all of its potentials. The latest stock price chaos, may contribute to medium-term losses for the stakeholders.

AAM SP 500

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AAM SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable fundamental indicators, AAM SP is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with IShares SP and AAM SP

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

The idea behind iShares SP Mid Cap and AAM 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.

Check out your portfolio center.

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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.