Correlation Between IShares Core and OShares Small

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

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

Diversification Opportunities for IShares Core and OShares Small

0.9

Correlation Coefficient

IShares Core  OShares Small

Almost no diversification

The 3 months correlation between IShares and OShares is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core SP and OShares Small Cap Quality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on OShares Small Cap and IShares Core 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 Core SP are associated (or correlated) with OShares Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of OShares Small Cap has no effect on the direction of IShares Core i.e., IShares Core and OShares Small go up and down completely randomly.

Pair Corralation between IShares Core and OShares Small

Considering the 90-day investment horizon iShares Core SP is expected to generate 1.39 times more return on investment than OShares Small. However, IShares Core is 1.39 times more volatile than OShares Small Cap Quality. It trades about 0.07 of its potential returns per unit of risk. OShares Small Cap Quality is currently generating about 0.07 per unit of risk. If you would invest  10,439  in iShares Core SP on September 29, 2024 and sell it today you would earn a total of  1,141  from holding iShares Core SP or generate 10.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.21%
Values	Daily Returns

iShares Core SP  vs.  OShares Small Cap Quality

iShares Core SP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Core SP has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward-looking indicators, IShares Core is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

OShares Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days OShares Small Cap Quality has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, OShares Small is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with IShares Core and OShares Small

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

The idea behind iShares Core SP and OShares Small Cap Quality 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.