Correlation Between IShares Semiconductor and Industrial Select

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

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

Diversification Opportunities for IShares Semiconductor and Industrial Select

0.64

Correlation Coefficient

IShares Semiconductor  Industrial Select

Poor diversification

The 3 months correlation between IShares and Industrial is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding iShares Semiconductor ETF and Industrial Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Industrial Select Sector and IShares Semiconductor 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 iShares Semiconductor ETF are associated (or correlated) with Industrial Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Industrial Select Sector has no effect on the direction of IShares Semiconductor i.e., IShares Semiconductor and Industrial Select go up and down completely randomly.

Pair Corralation between IShares Semiconductor and Industrial Select

Given the investment horizon of 90 days iShares Semiconductor ETF is expected to under-perform the Industrial Select. In addition to that, IShares Semiconductor is 2.23 times more volatile than Industrial Select Sector. It trades about -0.09 of its total potential returns per unit of risk. Industrial Select Sector is currently generating about -0.01 per unit of volatility. If you would invest  13,152  in Industrial Select Sector on December 30, 2024 and sell it today you would lose (137.00) from holding Industrial Select Sector or give up 1.04% of portfolio value over 90 days.

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

iShares Semiconductor ETF  vs.  Industrial Select Sector

iShares Semiconductor ETF

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Semiconductor ETF has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Etf's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the ETF investors.

Industrial Select Sector

Risk-Adjusted Performance

Very Weak

Over the last 90 days Industrial Select Sector has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong essential indicators, Industrial Select is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with IShares Semiconductor and Industrial Select

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

The idea behind iShares Semiconductor ETF and Industrial Select Sector 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.