Correlation Between IShares Core and OShares Europe

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

Diversification Opportunities for IShares Core and OShares Europe

-0.54

Correlation Coefficient

IShares Core  OShares Europe

Excellent diversification

The 3 months correlation between IShares and OShares is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core SP and OShares Europe Quality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on OShares Europe Quality 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 OShares Europe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of OShares Europe Quality has no effect on the direction of IShares Core i.e., IShares Core and OShares Europe go up and down completely randomly.

Pair Corralation between IShares Core and OShares Europe

Considering the 90-day investment horizon iShares Core SP is expected to generate 1.4 times more return on investment than OShares Europe. However, IShares Core is 1.4 times more volatile than OShares Europe Quality. It trades about -0.11 of its potential returns per unit of risk. OShares Europe Quality is currently generating about -0.36 per unit of risk. If you would invest  60,856  in iShares Core SP on October 5, 2024 and sell it today you would lose (1,395) from holding iShares Core SP or give up 2.29% of portfolio value over 90 days.

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

iShares Core SP  vs.  OShares Europe Quality

iShares Core SP

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core SP are ranked lower than 7 (%) 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.

OShares Europe Quality

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days OShares Europe Quality has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest unfluctuating performance, the Etf's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the ETF retail investors.

Pair Trading with IShares Core and OShares Europe

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

The idea behind iShares Core SP and OShares Europe Quality 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.