Correlation Between IShares Financials and IShares Global

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

Diversification Opportunities for IShares Financials and IShares Global

0.62

Correlation Coefficient

IShares Financials  IShares Global

Poor diversification

The 3 months correlation between IShares and IShares is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding iShares Financials ETF and iShares Global Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Global Energy 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 IShares Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Global Energy has no effect on the direction of IShares Financials i.e., IShares Financials and IShares Global go up and down completely randomly.

Pair Corralation between IShares Financials and IShares Global

Considering the 90-day investment horizon iShares Financials ETF is expected to generate 1.92 times more return on investment than IShares Global. However, IShares Financials is 1.92 times more volatile than iShares Global Energy. It trades about 0.31 of its potential returns per unit of risk. iShares Global Energy is currently generating about 0.16 per unit of risk. If you would invest  10,586  in iShares Financials ETF on September 4, 2024 and sell it today you would earn a total of  1,180  from holding iShares Financials ETF or generate 11.15% return on investment over 90 days.

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

iShares Financials ETF  vs.  iShares Global Energy

iShares Financials ETF

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Financials ETF are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, IShares Financials reported solid returns over the last few months and may actually be approaching a breakup point.

iShares Global Energy

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Global Energy are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, IShares Global 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 Financials and IShares Global

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

The idea behind iShares Financials ETF and iShares Global Energy 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.