Correlation Between IShares Core and KFA Mount

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

Diversification Opportunities for IShares Core and KFA Mount

-0.1

Correlation Coefficient

IShares Core  KFA Mount

Good diversification

The 3 months correlation between IShares and KFA is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core SP and KFA Mount Lucas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KFA Mount Lucas 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 KFA Mount. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KFA Mount Lucas has no effect on the direction of IShares Core i.e., IShares Core and KFA Mount go up and down completely randomly.

Pair Corralation between IShares Core and KFA Mount

Considering the 90-day investment horizon iShares Core SP is expected to generate 1.38 times more return on investment than KFA Mount. However, IShares Core is 1.38 times more volatile than KFA Mount Lucas. It trades about -0.05 of its potential returns per unit of risk. KFA Mount Lucas is currently generating about -0.08 per unit of risk. If you would invest  59,568  in iShares Core SP on December 27, 2024 and sell it today you would lose (1,772) from holding iShares Core SP or give up 2.97% of portfolio value over 90 days.

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

iShares Core SP  vs.  KFA Mount Lucas

iShares Core SP

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Core SP has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

KFA Mount Lucas

Risk-Adjusted Performance

Very Weak

Over the last 90 days KFA Mount Lucas has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy essential indicators, KFA Mount is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with IShares Core and KFA Mount

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

The idea behind iShares Core SP and KFA Mount Lucas 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 Commodity Directory module to find actively traded commodities issued by global exchanges.