Correlation Between IShares Trust and VanEck Biotech

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

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

Diversification Opportunities for IShares Trust and VanEck Biotech

0.56

Correlation Coefficient

IShares Trust  VanEck Biotech

Very weak diversification

The 3 months correlation between IShares and VanEck is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding iShares Trust and VanEck Biotech ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck Biotech ETF and IShares Trust 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 Trust are associated (or correlated) with VanEck Biotech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck Biotech ETF has no effect on the direction of IShares Trust i.e., IShares Trust and VanEck Biotech go up and down completely randomly.

Pair Corralation between IShares Trust and VanEck Biotech

Given the investment horizon of 90 days iShares Trust is expected to under-perform the VanEck Biotech. But the etf apears to be less risky and, when comparing its historical volatility, iShares Trust is 1.54 times less risky than VanEck Biotech. The etf trades about 0.0 of its potential returns per unit of risk. The VanEck Biotech ETF is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  15,632  in VanEck Biotech ETF on December 28, 2024 and sell it today you would earn a total of  211.00  from holding VanEck Biotech ETF or generate 1.35% return on investment over 90 days.

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

iShares Trust  vs.  VanEck Biotech ETF

iShares Trust

Risk-Adjusted Performance

Weak

Over the last 90 days iShares Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, IShares Trust is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

VanEck Biotech ETF

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in VanEck Biotech ETF are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong fundamental drivers, VanEck Biotech is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with IShares Trust and VanEck Biotech

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

The idea behind iShares Trust and VanEck Biotech ETF 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.