Correlation Between Swiss Leader and IShares SP
Can any of the company-specific risk be diversified away by investing in both Swiss Leader and IShares SP 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 SP 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 SP 500, you can compare the effects of market volatilities on Swiss Leader and IShares SP 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 SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Swiss Leader and IShares SP.
Diversification Opportunities for Swiss Leader and IShares SP
-0.19 | Correlation Coefficient |
Good diversification
The 3 months correlation between Swiss and IShares is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Swiss Leader Price and iShares SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SP 500 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 SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares SP 500 has no effect on the direction of Swiss Leader i.e., Swiss Leader and IShares SP go up and down completely randomly.
Pair Corralation between Swiss Leader and IShares SP
Assuming the 90 days trading horizon Swiss Leader Price is expected to generate 0.72 times more return on investment than IShares SP. However, Swiss Leader Price is 1.39 times less risky than IShares SP. It trades about 0.18 of its potential returns per unit of risk. iShares SP 500 is currently generating about -0.09 per unit of risk. If you would invest 191,712 in Swiss Leader Price on December 30, 2024 and sell it today you would earn a total of 15,691 from holding Swiss Leader Price or generate 8.18% 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 SP 500
Performance |
| Timeline |
Swiss Leader and IShares SP Volatility Contrast
Predicted Return Density |
| Returns |
Swiss Leader Price
Pair trading matchups for Swiss Leader
iShares SP 500
Pair trading matchups for IShares SP
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against IShares SP as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. IShares SP's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, IShares SP's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to iShares SP 500.
Pair Trading with Swiss Leader and IShares SP
The main advantage of trading using opposite Swiss Leader and IShares SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Swiss Leader position performs unexpectedly, IShares SP 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 SP will offset losses from the drop in IShares SP's long position.| Swiss Leader vs. Metall Zug AG | Swiss Leader vs. Schweiter Technologies AG | Swiss Leader vs. Liechtensteinische Landesbank AG | Swiss Leader vs. Softwareone Holding |
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against IShares SP as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. IShares SP's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, IShares SP's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to iShares SP 500.
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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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