Correlation Between IShares Consumer and IShares Basic

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

Diversification Opportunities for IShares Consumer and IShares Basic

0.36

Correlation Coefficient

IShares Consumer  IShares Basic

Weak diversification

The 3 months correlation between IShares and IShares is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding iShares Consumer Staples 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 Consumer 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 Consumer Staples 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 Consumer i.e., IShares Consumer and IShares Basic go up and down completely randomly.

Pair Corralation between IShares Consumer and IShares Basic

Considering the 90-day investment horizon iShares Consumer Staples is expected to generate 0.96 times more return on investment than IShares Basic. However, iShares Consumer Staples is 1.04 times less risky than IShares Basic. It trades about 0.15 of its potential returns per unit of risk. iShares Basic Materials is currently generating about 0.07 per unit of risk. If you would invest  6,505  in iShares Consumer Staples on December 29, 2024 and sell it today you would earn a total of  554.00  from holding iShares Consumer Staples or generate 8.52% return on investment over 90 days.

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

iShares Consumer Staples  vs.  iShares Basic Materials

iShares Consumer Staples

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Consumer Staples are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, IShares Consumer may actually be approaching a critical reversion point that can send shares even higher in April 2025.

iShares Basic Materials

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Basic Materials are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, IShares Basic is not utilizing all of its potentials. The new stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with IShares Consumer and IShares Basic

The main advantage of trading using opposite IShares Consumer and IShares Basic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Consumer 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 Consumer Staples 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.