Correlation Between IShares Basic and Global X

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

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

Diversification Opportunities for IShares Basic and Global X

0.62

Correlation Coefficient

IShares Basic  Global X

Poor diversification

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

Pair Corralation between IShares Basic and Global X

Considering the 90-day investment horizon IShares Basic is expected to generate 2.54 times less return on investment than Global X. But when comparing it to its historical volatility, iShares Basic Materials is 1.98 times less risky than Global X. It trades about 0.09 of its potential returns per unit of risk. Global X Copper is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  3,778  in Global X Copper on December 19, 2024 and sell it today you would earn a total of  487.00  from holding Global X Copper or generate 12.89% return on investment over 90 days.

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

iShares Basic Materials  vs.  Global X Copper

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 7 (%) 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.

Global X Copper

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Global X Copper are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Global X showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares Basic and Global X

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

The idea behind iShares Basic Materials and Global X Copper 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.