Correlation Between IShares Trust and IShares Core

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

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

Diversification Opportunities for IShares Trust and IShares Core

0.84

Correlation Coefficient

IShares Trust  IShares Core

Very poor diversification

The 3 months correlation between IShares and IShares is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding iShares Trust and iShares Core SP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Core SP and IShares Trust 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 Trust are associated (or correlated) with IShares Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Core SP has no effect on the direction of IShares Trust i.e., IShares Trust and IShares Core go up and down completely randomly.

Pair Corralation between IShares Trust and IShares Core

Assuming the 90 days trading horizon iShares Trust is expected to generate 1.18 times more return on investment than IShares Core. However, IShares Trust is 1.18 times more volatile than iShares Core SP. It trades about 0.11 of its potential returns per unit of risk. iShares Core SP is currently generating about 0.11 per unit of risk. If you would invest  270,537  in iShares Trust on September 29, 2024 and sell it today you would earn a total of  72,078  from holding iShares Trust or generate 26.64% return on investment over 90 days.

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

iShares Trust   vs.  iShares Core SP

iShares Trust

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Trust are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, IShares Trust may actually be approaching a critical reversion point that can send shares even higher in January 2025.

iShares Core SP

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core SP are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, IShares Core is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares Trust and IShares Core

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

The idea behind iShares Trust and iShares Core SP 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.