Correlation Between IShares Edge and IShares Small

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

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

Diversification Opportunities for IShares Edge and IShares Small

-0.18

Correlation Coefficient

IShares Edge  IShares Small

Good diversification

The 3 months correlation between IShares and IShares is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding iShares Edge MSCI and iShares Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Small Cap and IShares Edge 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 Edge MSCI are associated (or correlated) with IShares Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Small Cap has no effect on the direction of IShares Edge i.e., IShares Edge and IShares Small go up and down completely randomly.

Pair Corralation between IShares Edge and IShares Small

Given the investment horizon of 90 days iShares Edge MSCI is expected to under-perform the IShares Small. But the etf apears to be less risky and, when comparing its historical volatility, iShares Edge MSCI is 2.34 times less risky than IShares Small. The etf trades about -0.1 of its potential returns per unit of risk. The iShares Small Cap is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  3,242  in iShares Small Cap on October 11, 2024 and sell it today you would lose (42.00) from holding iShares Small Cap or give up 1.3% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

iShares Edge MSCI  vs.  iShares Small Cap

iShares Edge MSCI

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Edge MSCI has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable essential indicators, IShares Edge is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

iShares Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Small Cap has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, IShares Small is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with IShares Edge and IShares Small

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

The idea behind iShares Edge MSCI and iShares Small Cap 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.