Correlation Between IShares Global and IShares Expanded

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

By analyzing existing cross correlation between iShares Global Tech and iShares Expanded Tech Software, you can compare the effects of market volatilities on IShares Global and IShares Expanded 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 Expanded. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Global and IShares Expanded.

Diversification Opportunities for IShares Global and IShares Expanded

0.6

Correlation Coefficient

IShares Global  IShares Expanded

Poor diversification

The 3 months correlation between IShares and IShares is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding iShares Global Tech and iShares Expanded Tech Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Expanded Tech 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 Tech are associated (or correlated) with IShares Expanded. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Expanded Tech has no effect on the direction of IShares Global i.e., IShares Global and IShares Expanded go up and down completely randomly.

Pair Corralation between IShares Global and IShares Expanded

Considering the 90-day investment horizon iShares Global Tech is expected to generate 1.02 times more return on investment than IShares Expanded. However, IShares Global is 1.02 times more volatile than iShares Expanded Tech Software. It trades about 0.07 of its potential returns per unit of risk. iShares Expanded Tech Software is currently generating about 0.06 per unit of risk. If you would invest  7,153  in iShares Global Tech on October 24, 2024 and sell it today you would earn a total of  1,625  from holding iShares Global Tech or generate 22.72% return on investment over 90 days.

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

iShares Global Tech  vs.  iShares Expanded Tech Software

iShares Global Tech

Risk-Adjusted Performance

6 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Global Tech are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, IShares Global may actually be approaching a critical reversion point that can send shares even higher in February 2025.

iShares Expanded Tech

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Expanded Tech Software are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain technical and fundamental indicators, IShares Expanded showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares Global and IShares Expanded

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

The idea behind iShares Global Tech and iShares Expanded Tech Software 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.