Correlation Between IShares SP and IShares Asia

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

By analyzing existing cross correlation between iShares SP 500 and iShares Asia Pacific, you can compare the effects of market volatilities on IShares SP and IShares Asia 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 SP with a short position of IShares Asia. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares SP and IShares Asia.

Diversification Opportunities for IShares SP and IShares Asia

0.83

Correlation Coefficient

IShares SP  IShares Asia

Very poor diversification

The 3 months correlation between IShares and IShares is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding iShares SP 500 and iShares Asia Pacific in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Asia Pacific and IShares SP 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 SP 500 are associated (or correlated) with IShares Asia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Asia Pacific has no effect on the direction of IShares SP i.e., IShares SP and IShares Asia go up and down completely randomly.

Pair Corralation between IShares SP and IShares Asia

Assuming the 90 days trading horizon IShares SP is expected to generate 1.74 times less return on investment than IShares Asia. But when comparing it to its historical volatility, iShares SP 500 is 1.23 times less risky than IShares Asia. It trades about 0.02 of its potential returns per unit of risk. iShares Asia Pacific is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,971  in iShares Asia Pacific on October 10, 2024 and sell it today you would earn a total of  283.00  from holding iShares Asia Pacific or generate 14.36% return on investment over 90 days.

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

iShares SP 500  vs.  iShares Asia Pacific

iShares SP 500

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Etf's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the fund sophisticated investors.

iShares Asia Pacific

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Asia Pacific has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, IShares Asia is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with IShares SP and IShares Asia

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

The idea behind iShares SP 500 and iShares Asia Pacific 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.