Correlation Between IShares Basic and VanEck Semiconductor

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

Diversification Opportunities for IShares Basic and VanEck Semiconductor

0.05

Correlation Coefficient

IShares Basic  VanEck Semiconductor

Significant diversification

The 3 months correlation between IShares and VanEck is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding iShares Basic Materials and VanEck Semiconductor ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck Semiconductor ETF 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 VanEck Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck Semiconductor ETF has no effect on the direction of IShares Basic i.e., IShares Basic and VanEck Semiconductor go up and down completely randomly.

Pair Corralation between IShares Basic and VanEck Semiconductor

Considering the 90-day investment horizon iShares Basic Materials is expected to generate 0.39 times more return on investment than VanEck Semiconductor. However, iShares Basic Materials is 2.57 times less risky than VanEck Semiconductor. It trades about 0.11 of its potential returns per unit of risk. VanEck Semiconductor ETF is currently generating about -0.07 per unit of risk. 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	Insignificant
Accuracy	100.0%
Values	Daily Returns

iShares Basic Materials  vs.  VanEck Semiconductor ETF

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.

VanEck Semiconductor ETF

Risk-Adjusted Performance

Very Weak

Over the last 90 days VanEck Semiconductor ETF has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Etf's primary indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the Etf traders.

Pair Trading with IShares Basic and VanEck Semiconductor

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

The idea behind iShares Basic Materials and VanEck Semiconductor 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.