Correlation Between IShares Financials and IShares Basic

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

Diversification Opportunities for IShares Financials and IShares Basic

0.79

Correlation Coefficient

IShares Financials  IShares Basic

Poor diversification

The 3 months correlation between IShares and IShares is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding iShares Financials ETF and iShares Basic Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Basic Materials 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 Basic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Basic Materials has no effect on the direction of IShares Financials i.e., IShares Financials and IShares Basic go up and down completely randomly.

Pair Corralation between IShares Financials and IShares Basic

Considering the 90-day investment horizon IShares Financials is expected to generate 1.75 times less return on investment than IShares Basic. In addition to that, IShares Financials is 1.17 times more volatile than iShares Basic Materials. It trades about 0.05 of its total potential returns per unit of risk. iShares Basic Materials is currently generating about 0.11 per unit of volatility. If you would invest  12,870  in iShares Basic Materials on December 28, 2024 and sell it today you would earn a total of  792.00  from holding iShares Basic Materials or generate 6.15% 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 Basic Materials

iShares Financials ETF

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Financials ETF are ranked lower than 4 (%) 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.

iShares Basic Materials

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Basic Materials are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very sluggish basic indicators, IShares Basic may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with IShares Financials and IShares Basic

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

The idea behind iShares Financials ETF and iShares Basic Materials 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.