Correlation Between IShares Financials and VanEck BDC

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

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

Diversification Opportunities for IShares Financials and VanEck BDC

0.89

Correlation Coefficient

IShares Financials  VanEck BDC

Very poor diversification

The 3 months correlation between IShares and VanEck is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding iShares Financials ETF and VanEck BDC Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck BDC Income and IShares Financials 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 Financials ETF are associated (or correlated) with VanEck BDC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck BDC Income has no effect on the direction of IShares Financials i.e., IShares Financials and VanEck BDC go up and down completely randomly.

Pair Corralation between IShares Financials and VanEck BDC

Considering the 90-day investment horizon IShares Financials is expected to generate 1.07 times less return on investment than VanEck BDC. In addition to that, IShares Financials is 1.26 times more volatile than VanEck BDC Income. It trades about 0.02 of its total potential returns per unit of risk. VanEck BDC Income is currently generating about 0.03 per unit of volatility. If you would invest  1,659  in VanEck BDC Income on December 28, 2024 and sell it today you would earn a total of  27.00  from holding VanEck BDC Income or generate 1.63% return on investment over 90 days.

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

iShares Financials ETF  vs.  VanEck BDC Income

iShares Financials ETF

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Financials ETF are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, IShares Financials is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

VanEck BDC Income

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in VanEck BDC Income are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, VanEck BDC is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with IShares Financials and VanEck BDC

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

The idea behind iShares Financials ETF and VanEck BDC Income 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.