Correlation Between IShares Trust and FlexShares Core

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

By analyzing existing cross correlation between iShares Trust and FlexShares Core Select, you can compare the effects of market volatilities on IShares Trust and FlexShares Core 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 FlexShares Core. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Trust and FlexShares Core.

Diversification Opportunities for IShares Trust and FlexShares Core

-0.39

Correlation Coefficient

IShares Trust  FlexShares Core

Very good diversification

The 3 months correlation between IShares and FlexShares is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding iShares Trust and FlexShares Core Select in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares Core Select 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 FlexShares Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares Core Select has no effect on the direction of IShares Trust i.e., IShares Trust and FlexShares Core go up and down completely randomly.

Pair Corralation between IShares Trust and FlexShares Core

Given the investment horizon of 90 days iShares Trust is expected to generate 1.65 times more return on investment than FlexShares Core. However, IShares Trust is 1.65 times more volatile than FlexShares Core Select. It trades about 0.16 of its potential returns per unit of risk. FlexShares Core Select is currently generating about -0.09 per unit of risk. If you would invest  3,036  in iShares Trust on September 5, 2024 and sell it today you would earn a total of  154.00  from holding iShares Trust or generate 5.07% return on investment over 90 days.

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

iShares Trust  vs.  FlexShares Core Select

iShares Trust

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Trust are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. 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.

FlexShares Core Select

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with IShares Trust and FlexShares Core

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

The idea behind iShares Trust and FlexShares Core Select 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.