Correlation Between IShares Core and IShares China

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

Diversification Opportunities for IShares Core and IShares China

0.48

Correlation Coefficient

IShares Core  IShares China

Very weak diversification

The 3 months correlation between IShares and IShares is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core SP and iShares China LargeCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares China LargeCap 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 IShares China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares China LargeCap has no effect on the direction of IShares Core i.e., IShares Core and IShares China go up and down completely randomly.

Pair Corralation between IShares Core and IShares China

Assuming the 90 days trading horizon IShares Core is expected to generate 1.55 times less return on investment than IShares China. But when comparing it to its historical volatility, iShares Core SP is 3.2 times less risky than IShares China. It trades about 0.29 of its potential returns per unit of risk. iShares China LargeCap is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  3,876  in iShares China LargeCap on September 4, 2024 and sell it today you would earn a total of  821.00  from holding iShares China LargeCap or generate 21.18% return on investment over 90 days.

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

iShares Core SP  vs.  iShares China LargeCap

iShares Core SP

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core SP are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, IShares Core unveiled solid returns over the last few months and may actually be approaching a breakup point.

iShares China LargeCap

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares China LargeCap are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, IShares China unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares Core and IShares China

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

The idea behind iShares Core SP and iShares China LargeCap 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.