Correlation Between IShares Industrials and IShares Healthcare

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

Diversification Opportunities for IShares Industrials and IShares Healthcare

-0.74

Correlation Coefficient

IShares Industrials  IShares Healthcare

Pay attention - limited upside

The 3 months correlation between IShares and IShares is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding iShares Industrials ETF and iShares Healthcare ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Healthcare ETF 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 Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Healthcare ETF has no effect on the direction of IShares Industrials i.e., IShares Industrials and IShares Healthcare go up and down completely randomly.

Pair Corralation between IShares Industrials and IShares Healthcare

Considering the 90-day investment horizon iShares Industrials ETF is expected to generate 1.21 times more return on investment than IShares Healthcare. However, IShares Industrials is 1.21 times more volatile than iShares Healthcare ETF. It trades about 0.18 of its potential returns per unit of risk. iShares Healthcare ETF is currently generating about -0.14 per unit of risk. If you would invest  13,367  in iShares Industrials ETF on August 30, 2024 and sell it today you would earn a total of  954.00  from holding iShares Industrials ETF or generate 7.14% return on investment over 90 days.

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

iShares Industrials ETF  vs.  iShares Healthcare ETF

iShares Industrials ETF

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Industrials ETF are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, IShares Industrials may actually be approaching a critical reversion point that can send shares even higher in December 2024.

iShares Healthcare ETF

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Healthcare ETF has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, IShares Healthcare is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with IShares Industrials and IShares Healthcare

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

The idea behind iShares Industrials ETF and iShares Healthcare ETF 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.