Correlation Between IShares Emerging and IShares Broad

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

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

Diversification Opportunities for IShares Emerging and IShares Broad

-0.31

Correlation Coefficient

IShares Emerging  IShares Broad

Very good diversification

The 3 months correlation between IShares and IShares is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding iShares Emerging Markets and iShares Broad High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Broad High and IShares Emerging 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 Emerging Markets are associated (or correlated) with IShares Broad. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Broad High has no effect on the direction of IShares Emerging i.e., IShares Emerging and IShares Broad go up and down completely randomly.

Pair Corralation between IShares Emerging and IShares Broad

Assuming the 90 days trading horizon iShares Emerging Markets is expected to under-perform the IShares Broad. In addition to that, IShares Emerging is 2.24 times more volatile than iShares Broad High. It trades about -0.06 of its total potential returns per unit of risk. iShares Broad High is currently generating about 0.09 per unit of volatility. If you would invest  582.00  in iShares Broad High on December 25, 2024 and sell it today you would earn a total of  8.00  from holding iShares Broad High or generate 1.37% return on investment over 90 days.

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

iShares Emerging Markets  vs.  iShares Broad High

iShares Emerging Markets

Risk-Adjusted Performance

Very Weak

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

iShares Broad High

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Broad High are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, IShares Broad 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 Emerging and IShares Broad

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

The idea behind iShares Emerging Markets and iShares Broad High 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.