Correlation Between ETRACS 2xMonthly and IShares Morningstar

Can any of the company-specific risk be diversified away by investing in both ETRACS 2xMonthly and IShares Morningstar 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 ETRACS 2xMonthly and IShares Morningstar into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ETRACS 2xMonthly Pay and iShares Morningstar Growth, you can compare the effects of market volatilities on ETRACS 2xMonthly and IShares Morningstar 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 ETRACS 2xMonthly with a short position of IShares Morningstar. Check out your portfolio center. Please also check ongoing floating volatility patterns of ETRACS 2xMonthly and IShares Morningstar.

Diversification Opportunities for ETRACS 2xMonthly and IShares Morningstar

-0.89

Correlation Coefficient

ETRACS 2xMonthly  IShares Morningstar

Pay attention - limited upside

The 3 months correlation between ETRACS and IShares is -0.89. Overlapping area represents the amount of risk that can be diversified away by holding ETRACS 2xMonthly Pay and iShares Morningstar Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Morningstar and ETRACS 2xMonthly 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 ETRACS 2xMonthly Pay are associated (or correlated) with IShares Morningstar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Morningstar has no effect on the direction of ETRACS 2xMonthly i.e., ETRACS 2xMonthly and IShares Morningstar go up and down completely randomly.

Pair Corralation between ETRACS 2xMonthly and IShares Morningstar

Given the investment horizon of 90 days ETRACS 2xMonthly is expected to generate 3.38 times less return on investment than IShares Morningstar. In addition to that, ETRACS 2xMonthly is 1.58 times more volatile than iShares Morningstar Growth. It trades about 0.02 of its total potential returns per unit of risk. iShares Morningstar Growth is currently generating about 0.13 per unit of volatility. If you would invest  4,820  in iShares Morningstar Growth on September 24, 2024 and sell it today you would earn a total of  4,279  from holding iShares Morningstar Growth or generate 88.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	99.2%
Values	Daily Returns

ETRACS 2xMonthly Pay  vs.  iShares Morningstar Growth

ETRACS 2xMonthly Pay

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ETRACS 2xMonthly Pay has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Etf's technical and fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the ETF venture institutional investors.

iShares Morningstar

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Morningstar Growth are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile forward-looking signals, IShares Morningstar may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with ETRACS 2xMonthly and IShares Morningstar

The main advantage of trading using opposite ETRACS 2xMonthly and IShares Morningstar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ETRACS 2xMonthly position performs unexpectedly, IShares Morningstar 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 Morningstar will offset losses from the drop in IShares Morningstar's long position.

The idea behind ETRACS 2xMonthly Pay and iShares Morningstar Growth 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.