Correlation Between IShares Core and Merrill Lynch

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

Diversification Opportunities for IShares Core and Merrill Lynch

0.29

Correlation Coefficient

IShares Core  Merrill Lynch

Modest diversification

The 3 months correlation between IShares and Merrill is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core SP and Merrill Lynch in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merrill Lynch 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 Merrill Lynch. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merrill Lynch has no effect on the direction of IShares Core i.e., IShares Core and Merrill Lynch go up and down completely randomly.

Pair Corralation between IShares Core and Merrill Lynch

Considering the 90-day investment horizon iShares Core SP is expected to generate 0.04 times more return on investment than Merrill Lynch. However, iShares Core SP is 22.84 times less risky than Merrill Lynch. It trades about 0.12 of its potential returns per unit of risk. Merrill Lynch is currently generating about -0.18 per unit of risk. If you would invest  37,825  in iShares Core SP on September 29, 2024 and sell it today you would earn a total of  21,928  from holding iShares Core SP or generate 57.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	6.05%
Values	Daily Returns

iShares Core SP  vs.  Merrill Lynch

iShares Core SP

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core SP are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, IShares Core is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Merrill Lynch

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with IShares Core and Merrill Lynch

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

The idea behind iShares Core SP and Merrill Lynch 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.