Correlation Between FlexShares STOXX and IShares Infrastructure

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

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

Diversification Opportunities for FlexShares STOXX and IShares Infrastructure

-0.39

Correlation Coefficient

FlexShares STOXX  IShares Infrastructure

Very good diversification

The 3 months correlation between FlexShares and IShares is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding FlexShares STOXX Global and iShares Infrastructure ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Infrastructure and FlexShares STOXX 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 STOXX Global are associated (or correlated) with IShares Infrastructure. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Infrastructure has no effect on the direction of FlexShares STOXX i.e., FlexShares STOXX and IShares Infrastructure go up and down completely randomly.

Pair Corralation between FlexShares STOXX and IShares Infrastructure

Given the investment horizon of 90 days FlexShares STOXX Global is expected to generate 0.75 times more return on investment than IShares Infrastructure. However, FlexShares STOXX Global is 1.34 times less risky than IShares Infrastructure. It trades about -0.06 of its potential returns per unit of risk. iShares Infrastructure ETF is currently generating about -0.06 per unit of risk. If you would invest  5,722  in FlexShares STOXX Global on September 14, 2024 and sell it today you would lose (40.00) from holding FlexShares STOXX Global or give up 0.7% of portfolio value over 90 days.

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

FlexShares STOXX Global  vs.  iShares Infrastructure ETF

FlexShares STOXX Global

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FlexShares STOXX Global has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, FlexShares STOXX is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

iShares Infrastructure

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Infrastructure ETF are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, IShares Infrastructure may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with FlexShares STOXX and IShares Infrastructure

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

The idea behind FlexShares STOXX Global and iShares Infrastructure 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.