Correlation Between IShares Core and TCW ETF

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

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

Diversification Opportunities for IShares Core and TCW ETF

0.2

Correlation Coefficient

IShares Core  TCW ETF

Modest diversification

The 3 months correlation between IShares and TCW is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core SP and TCW ETF Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TCW ETF Trust and IShares Core 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 Core SP are associated (or correlated) with TCW ETF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TCW ETF Trust has no effect on the direction of IShares Core i.e., IShares Core and TCW ETF go up and down completely randomly.

Pair Corralation between IShares Core and TCW ETF

Given the investment horizon of 90 days iShares Core SP is expected to generate 1.45 times more return on investment than TCW ETF. However, IShares Core is 1.45 times more volatile than TCW ETF Trust. It trades about 0.01 of its potential returns per unit of risk. TCW ETF Trust is currently generating about -0.06 per unit of risk. If you would invest  13,876  in iShares Core SP on November 28, 2024 and sell it today you would earn a total of  22.00  from holding iShares Core SP or generate 0.16% return on investment over 90 days.

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

iShares Core SP  vs.  TCW ETF Trust

iShares Core SP

Risk-Adjusted Performance

Weak

Over the last 90 days iShares Core SP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, IShares Core is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

TCW ETF Trust

Risk-Adjusted Performance

Very Weak

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

Pair Trading with IShares Core and TCW ETF

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

The idea behind iShares Core SP and TCW ETF Trust 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.