Correlation Between IShares Edge and IShares Equity

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

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

Diversification Opportunities for IShares Edge and IShares Equity

-0.54

Correlation Coefficient

IShares Edge  IShares Equity

Excellent diversification

The 3 months correlation between IShares and IShares is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding iShares Edge MSCI and iShares Equity Factor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Equity Factor and IShares Edge 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 Edge MSCI are associated (or correlated) with IShares Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Equity Factor has no effect on the direction of IShares Edge i.e., IShares Edge and IShares Equity go up and down completely randomly.

Pair Corralation between IShares Edge and IShares Equity

Given the investment horizon of 90 days iShares Edge MSCI is expected to under-perform the IShares Equity. In addition to that, IShares Edge is 1.11 times more volatile than iShares Equity Factor. It trades about -0.09 of its total potential returns per unit of risk. iShares Equity Factor is currently generating about 0.16 per unit of volatility. If you would invest  5,751  in iShares Equity Factor on August 30, 2024 and sell it today you would earn a total of  471.00  from holding iShares Equity Factor or generate 8.19% return on investment over 90 days.

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

iShares Edge MSCI  vs.  iShares Equity Factor

iShares Edge MSCI

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Edge MSCI has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, IShares Edge is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

iShares Equity Factor

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Equity Factor are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating technical and fundamental indicators, IShares Equity may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with IShares Edge and IShares Equity

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

The idea behind iShares Edge MSCI and iShares Equity Factor 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.