Correlation Between IShares Core and Volatility Shares

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

Diversification Opportunities for IShares Core and Volatility Shares

0.45

Correlation Coefficient

IShares Core  Volatility Shares

Very weak diversification

The 3 months correlation between IShares and Volatility is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core SP and Volatility Shares Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volatility Shares Trust 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 Volatility Shares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Volatility Shares Trust has no effect on the direction of IShares Core i.e., IShares Core and Volatility Shares go up and down completely randomly.

Pair Corralation between IShares Core and Volatility Shares

Considering the 90-day investment horizon iShares Core SP is expected to generate 0.4 times more return on investment than Volatility Shares. However, iShares Core SP is 2.52 times less risky than Volatility Shares. It trades about -0.11 of its potential returns per unit of risk. Volatility Shares Trust is currently generating about -0.11 per unit of risk. If you would invest  60,555  in iShares Core SP on October 10, 2024 and sell it today you would lose (1,398) from holding iShares Core SP or give up 2.31% of portfolio value over 90 days.

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

iShares Core SP  vs.  Volatility Shares Trust

iShares Core SP

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core SP are ranked lower than 4 (%) 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.

Volatility Shares Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Volatility Shares Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Volatility Shares is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares Core and Volatility Shares

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

The idea behind iShares Core SP and Volatility Shares Trust 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 Global Correlations module to find global opportunities by holding instruments from different markets.