Correlation Between IShares Energy and IShares North

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

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

Diversification Opportunities for IShares Energy and IShares North

0.98

Correlation Coefficient

IShares Energy  IShares North

Almost no diversification

The 3 months correlation between IShares and IShares is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding iShares Energy ETF and iShares North American in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares North American and IShares Energy 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 Energy ETF are associated (or correlated) with IShares North. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares North American has no effect on the direction of IShares Energy i.e., IShares Energy and IShares North go up and down completely randomly.

Pair Corralation between IShares Energy and IShares North

Considering the 90-day investment horizon iShares Energy ETF is expected to generate 1.13 times more return on investment than IShares North. However, IShares Energy is 1.13 times more volatile than iShares North American. It trades about -0.05 of its potential returns per unit of risk. iShares North American is currently generating about -0.08 per unit of risk. If you would invest  5,012  in iShares Energy ETF on November 28, 2024 and sell it today you would lose (207.00) from holding iShares Energy ETF or give up 4.13% of portfolio value over 90 days.

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

iShares Energy ETF  vs.  iShares North American

iShares Energy ETF

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Energy ETF has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, IShares Energy is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

iShares North American

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares North American has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, IShares North is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with IShares Energy and IShares North

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

The idea behind iShares Energy ETF and iShares North American 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.