Correlation Between IShares Industrials and IShares Financial

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

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

Diversification Opportunities for IShares Industrials and IShares Financial

0.9

Correlation Coefficient

IShares Industrials  IShares Financial

Almost no diversification

The 3 months correlation between IShares and IShares is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding iShares Industrials ETF and iShares Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Financial and IShares Industrials 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 Industrials ETF are associated (or correlated) with IShares Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Financial has no effect on the direction of IShares Industrials i.e., IShares Industrials and IShares Financial go up and down completely randomly.

Pair Corralation between IShares Industrials and IShares Financial

Considering the 90-day investment horizon iShares Industrials ETF is expected to under-perform the IShares Financial. But the etf apears to be less risky and, when comparing its historical volatility, iShares Industrials ETF is 1.2 times less risky than IShares Financial. The etf trades about -0.01 of its potential returns per unit of risk. The iShares Financial Services is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  7,753  in iShares Financial Services on December 28, 2024 and sell it today you would earn a total of  183.00  from holding iShares Financial Services or generate 2.36% return on investment over 90 days.

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

iShares Industrials ETF  vs.  iShares Financial Services

iShares Industrials ETF

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Industrials ETF has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady basic indicators, IShares Industrials is not utilizing all of its potentials. The latest stock price chaos, may contribute to medium-term losses for the stakeholders.

iShares Financial

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Financial Services are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, IShares Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with IShares Industrials and IShares Financial

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

The idea behind iShares Industrials ETF and iShares Financial Services 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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.