Correlation Between FlexShares Credit and FlexShares Quality

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

By analyzing existing cross correlation between FlexShares Credit Scored Long and FlexShares Quality Large, you can compare the effects of market volatilities on FlexShares Credit and FlexShares Quality 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 FlexShares Credit with a short position of FlexShares Quality. Check out your portfolio center. Please also check ongoing floating volatility patterns of FlexShares Credit and FlexShares Quality.

Diversification Opportunities for FlexShares Credit and FlexShares Quality

-0.5

Correlation Coefficient

FlexShares Credit  FlexShares Quality

Very good diversification

The 3 months correlation between FlexShares and FlexShares is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding FlexShares Credit Scored Long and FlexShares Quality Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares Quality Large and FlexShares Credit 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 FlexShares Credit Scored Long are associated (or correlated) with FlexShares Quality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares Quality Large has no effect on the direction of FlexShares Credit i.e., FlexShares Credit and FlexShares Quality go up and down completely randomly.

Pair Corralation between FlexShares Credit and FlexShares Quality

Given the investment horizon of 90 days FlexShares Credit is expected to generate 3.52 times less return on investment than FlexShares Quality. In addition to that, FlexShares Credit is 1.51 times more volatile than FlexShares Quality Large. It trades about 0.05 of its total potential returns per unit of risk. FlexShares Quality Large is currently generating about 0.26 per unit of volatility. If you would invest  6,673  in FlexShares Quality Large on September 17, 2024 and sell it today you would earn a total of  152.00  from holding FlexShares Quality Large or generate 2.28% return on investment over 90 days.

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

FlexShares Credit Scored Long  vs.  FlexShares Quality Large

FlexShares Credit

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FlexShares Credit Scored Long has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, FlexShares Credit is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

FlexShares Quality Large

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FlexShares Quality Large are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady essential indicators, FlexShares Quality may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with FlexShares Credit and FlexShares Quality

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

The idea behind FlexShares Credit Scored Long and FlexShares Quality Large 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.