Correlation Between IShares SP and IShares Morningstar

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

Diversification Opportunities for IShares SP and IShares Morningstar

0.97

Correlation Coefficient

IShares SP  IShares Morningstar

Almost no diversification

The 3 months correlation between IShares and IShares is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding iShares SP Mid Cap and iShares Morningstar Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Morningstar Mid 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 IShares Morningstar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Morningstar Mid has no effect on the direction of IShares SP i.e., IShares SP and IShares Morningstar go up and down completely randomly.

Pair Corralation between IShares SP and IShares Morningstar

Considering the 90-day investment horizon IShares SP is expected to generate 1.06 times less return on investment than IShares Morningstar. In addition to that, IShares SP is 1.06 times more volatile than iShares Morningstar Mid Cap. It trades about 0.08 of its total potential returns per unit of risk. iShares Morningstar Mid Cap is currently generating about 0.09 per unit of volatility. If you would invest  5,404  in iShares Morningstar Mid Cap on September 5, 2024 and sell it today you would earn a total of  2,647  from holding iShares Morningstar Mid Cap or generate 48.98% return on investment over 90 days.

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

iShares SP Mid Cap  vs.  iShares Morningstar Mid Cap

iShares SP Mid

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SP Mid Cap are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite quite weak forward-looking indicators, IShares SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

iShares Morningstar Mid

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Morningstar Mid Cap are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak fundamental indicators, IShares Morningstar reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares SP and IShares Morningstar

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

The idea behind iShares SP Mid Cap and iShares Morningstar Mid Cap 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 Transaction History module to view history of all your transactions and understand their impact on performance.