Correlation Between IShares Global and VanEck Biotech

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

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

Diversification Opportunities for IShares Global and VanEck Biotech

0.86

Correlation Coefficient

IShares Global  VanEck Biotech

Very poor diversification

The 3 months correlation between IShares and VanEck is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding iShares Global Healthcare and VanEck Biotech ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck Biotech ETF and IShares Global 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 Global Healthcare are associated (or correlated) with VanEck Biotech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck Biotech ETF has no effect on the direction of IShares Global i.e., IShares Global and VanEck Biotech go up and down completely randomly.

Pair Corralation between IShares Global and VanEck Biotech

Considering the 90-day investment horizon iShares Global Healthcare is expected to generate 0.71 times more return on investment than VanEck Biotech. However, iShares Global Healthcare is 1.41 times less risky than VanEck Biotech. It trades about 0.02 of its potential returns per unit of risk. VanEck Biotech ETF is currently generating about 0.0 per unit of risk. If you would invest  9,180  in iShares Global Healthcare on November 28, 2024 and sell it today you would earn a total of  51.00  from holding iShares Global Healthcare or generate 0.56% return on investment over 90 days.

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

iShares Global Healthcare  vs.  VanEck Biotech ETF

iShares Global Healthcare

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Global Healthcare are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively steady basic indicators, IShares Global is not utilizing all of its potentials. The current stock price chaos, may contribute to medium-term losses for the stakeholders.

VanEck Biotech ETF

Risk-Adjusted Performance

Very Weak

Over the last 90 days VanEck Biotech ETF has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental drivers, VanEck Biotech is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with IShares Global and VanEck Biotech

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

The idea behind iShares Global Healthcare and VanEck Biotech 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.