Correlation Between IShares SP and IShares TecDAX

Can any of the company-specific risk be diversified away by investing in both IShares SP and IShares TecDAX 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 TecDAX 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 TecDAX UCITS, you can compare the effects of market volatilities on IShares SP and IShares TecDAX 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 TecDAX. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares SP and IShares TecDAX.

Diversification Opportunities for IShares SP and IShares TecDAX

0.62

Correlation Coefficient

IShares SP  IShares TecDAX

Poor diversification

The 3 months correlation between IShares and IShares is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding iShares SP 500 and iShares TecDAX UCITS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares TecDAX UCITS 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 TecDAX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares TecDAX UCITS has no effect on the direction of IShares SP i.e., IShares SP and IShares TecDAX go up and down completely randomly.

Pair Corralation between IShares SP and IShares TecDAX

Assuming the 90 days trading horizon iShares SP 500 is expected to generate 0.88 times more return on investment than IShares TecDAX. However, iShares SP 500 is 1.14 times less risky than IShares TecDAX. It trades about 0.12 of its potential returns per unit of risk. iShares TecDAX UCITS is currently generating about 0.02 per unit of risk. If you would invest  3,865  in iShares SP 500 on October 10, 2024 and sell it today you would earn a total of  2,056  from holding iShares SP 500 or generate 53.2% return on investment over 90 days.

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

iShares SP 500  vs.  iShares TecDAX UCITS

iShares SP 500

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SP 500 are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, IShares SP is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

iShares TecDAX UCITS

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares TecDAX UCITS are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, IShares TecDAX is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares SP and IShares TecDAX

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

The idea behind iShares SP 500 and iShares TecDAX UCITS 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.