Correlation Between IShares Global and IShares Energy

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

Diversification Opportunities for IShares Global and IShares Energy

-0.7

Correlation Coefficient

IShares Global  IShares Energy

Excellent diversification

The 3 months correlation between IShares and IShares is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding iShares Global Healthcare and iShares Energy ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Energy 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 IShares Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Energy ETF has no effect on the direction of IShares Global i.e., IShares Global and IShares Energy go up and down completely randomly.

Pair Corralation between IShares Global and IShares Energy

Considering the 90-day investment horizon iShares Global Healthcare is expected to under-perform the IShares Energy. But the etf apears to be less risky and, when comparing its historical volatility, iShares Global Healthcare is 1.78 times less risky than IShares Energy. The etf trades about -0.2 of its potential returns per unit of risk. The iShares Energy ETF is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  4,645  in iShares Energy ETF on September 2, 2024 and sell it today you would earn a total of  401.00  from holding iShares Energy ETF or generate 8.63% return on investment over 90 days.

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

iShares Global Healthcare  vs.  iShares Energy ETF

iShares Global Healthcare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Global Healthcare has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest fragile performance, the Etf's basic indicators remain steady and the new chaos on Wall Street may also be a sign of medium-term gains for the ETF firm stakeholders.

iShares Energy ETF

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Energy ETF are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, IShares Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares Global and IShares Energy

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

The idea behind iShares Global Healthcare and iShares Energy 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.