Correlation Between FlexShares Quality and IndexIQ

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

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

Diversification Opportunities for FlexShares Quality and IndexIQ

0.16

Correlation Coefficient

FlexShares Quality  IndexIQ

Average diversification

The 3 months correlation between FlexShares and IndexIQ is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding FlexShares Quality Dividend and IndexIQ in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IndexIQ and FlexShares Quality 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 Quality Dividend are associated (or correlated) with IndexIQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IndexIQ has no effect on the direction of FlexShares Quality i.e., FlexShares Quality and IndexIQ go up and down completely randomly.

Pair Corralation between FlexShares Quality and IndexIQ

Given the investment horizon of 90 days FlexShares Quality Dividend is expected to generate 0.69 times more return on investment than IndexIQ. However, FlexShares Quality Dividend is 1.44 times less risky than IndexIQ. It trades about 0.13 of its potential returns per unit of risk. IndexIQ is currently generating about 0.04 per unit of risk. If you would invest  5,828  in FlexShares Quality Dividend on October 7, 2024 and sell it today you would earn a total of  1,247  from holding FlexShares Quality Dividend or generate 21.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	88.31%
Values	Daily Returns

FlexShares Quality Dividend  vs.  IndexIQ

FlexShares Quality

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in FlexShares Quality Dividend are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, FlexShares Quality is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

IndexIQ

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IndexIQ has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, IndexIQ is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with FlexShares Quality and IndexIQ

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

The idea behind FlexShares Quality Dividend and IndexIQ 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.