Correlation Between Swiss Leader and IShares Core

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

By analyzing existing cross correlation between Swiss Leader Price and iShares Core SP, you can compare the effects of market volatilities on Swiss Leader and IShares Core 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 Swiss Leader with a short position of IShares Core. Check out your portfolio center. Please also check ongoing floating volatility patterns of Swiss Leader and IShares Core.

Diversification Opportunities for Swiss Leader and IShares Core

-0.18

Correlation Coefficient

Swiss Leader  IShares Core

Good diversification

The 3 months correlation between Swiss and IShares is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Swiss Leader Price and iShares Core SP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Core SP and Swiss Leader 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 Swiss Leader Price are associated (or correlated) with IShares Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Core SP has no effect on the direction of Swiss Leader i.e., Swiss Leader and IShares Core go up and down completely randomly.

Pair Corralation between Swiss Leader and IShares Core

Assuming the 90 days trading horizon Swiss Leader is expected to generate 32.02 times less return on investment than IShares Core. But when comparing it to its historical volatility, Swiss Leader Price is 1.04 times less risky than IShares Core. It trades about 0.01 of its potential returns per unit of risk. iShares Core SP is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  58,070  in iShares Core SP on September 5, 2024 and sell it today you would earn a total of  5,990  from holding iShares Core SP or generate 10.32% return on investment over 90 days.

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

Swiss Leader Price  vs.  iShares Core SP

Pair Trading with Swiss Leader and IShares Core

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

The idea behind Swiss Leader Price and iShares Core SP 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.

Check out your portfolio center.

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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..