Correlation Between FlexShares International and IQ 50

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Can any of the company-specific risk be diversified away by investing in both FlexShares International and IQ 50 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 FlexShares International and IQ 50 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between FlexShares International Quality and IQ 50 Percent, you can compare the effects of market volatilities on FlexShares International and IQ 50 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 FlexShares International with a short position of IQ 50. Check out your portfolio center. Please also check ongoing floating volatility patterns of FlexShares International and IQ 50.

Diversification Opportunities for FlexShares International and IQ 50

0.94
  Correlation Coefficient

Almost no diversification

The 3 months correlation between FlexShares and HFXI is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding FlexShares International Quali and IQ 50 Percent in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IQ 50 Percent and FlexShares International 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 FlexShares International Quality are associated (or correlated) with IQ 50. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IQ 50 Percent has no effect on the direction of FlexShares International i.e., FlexShares International and IQ 50 go up and down completely randomly.

Pair Corralation between FlexShares International and IQ 50

Given the investment horizon of 90 days FlexShares International Quality is expected to under-perform the IQ 50. In addition to that, FlexShares International is 1.08 times more volatile than IQ 50 Percent. It trades about -0.06 of its total potential returns per unit of risk. IQ 50 Percent is currently generating about -0.02 per unit of volatility. If you would invest  2,713  in IQ 50 Percent on September 16, 2024 and sell it today you would lose (26.00) from holding IQ 50 Percent or give up 0.96% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

FlexShares International Quali  vs.  IQ 50 Percent

 Performance 
       Timeline  
FlexShares International 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days FlexShares International Quality has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, FlexShares International is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.
IQ 50 Percent 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days IQ 50 Percent has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, IQ 50 is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

FlexShares International and IQ 50 Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with FlexShares International and IQ 50

The main advantage of trading using opposite FlexShares International and IQ 50 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FlexShares International position performs unexpectedly, IQ 50 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 IQ 50 will offset losses from the drop in IQ 50's long position.
The idea behind FlexShares International Quality and IQ 50 Percent 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..

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