Correlation Between IShares Developed and IShares SMI

Can any of the company-specific risk be diversified away by investing in both IShares Developed and IShares SMI 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 Developed and IShares SMI into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between iShares Developed Markets and iShares SMI ETF, you can compare the effects of market volatilities on IShares Developed and IShares SMI 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 Developed with a short position of IShares SMI. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Developed and IShares SMI.

Diversification Opportunities for IShares Developed and IShares SMI

0.63

Correlation Coefficient

IShares Developed  IShares SMI

Poor diversification

The 3 months correlation between IShares and IShares is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding iShares Developed Markets and iShares SMI ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SMI ETF and IShares Developed 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 Developed Markets are associated (or correlated) with IShares SMI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares SMI ETF has no effect on the direction of IShares Developed i.e., IShares Developed and IShares SMI go up and down completely randomly.

Pair Corralation between IShares Developed and IShares SMI

Assuming the 90 days trading horizon iShares Developed Markets is expected to under-perform the IShares SMI. But the etf apears to be less risky and, when comparing its historical volatility, iShares Developed Markets is 1.05 times less risky than IShares SMI. The etf trades about -0.17 of its potential returns per unit of risk. The iShares SMI ETF is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  12,438  in iShares SMI ETF on September 16, 2024 and sell it today you would lose (308.00) from holding iShares SMI ETF or give up 2.48% of portfolio value over 90 days.

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

iShares Developed Markets  vs.  iShares SMI ETF

iShares Developed Markets

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Developed Markets has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Etf's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the fund sophisticated investors.

iShares SMI ETF

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with IShares Developed and IShares SMI

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

The idea behind iShares Developed Markets and iShares SMI ETF 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.