Correlation Between IShares Small and TCW ETF

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

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

Diversification Opportunities for IShares Small and TCW ETF

0.8

Correlation Coefficient

IShares Small  TCW ETF

Very poor diversification

The 3 months correlation between IShares and TCW is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding iShares Small Cap and TCW ETF Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TCW ETF Trust and IShares Small 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 Small Cap are associated (or correlated) with TCW ETF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TCW ETF Trust has no effect on the direction of IShares Small i.e., IShares Small and TCW ETF go up and down completely randomly.

Pair Corralation between IShares Small and TCW ETF

Given the investment horizon of 90 days iShares Small Cap is expected to generate 1.78 times more return on investment than TCW ETF. However, IShares Small is 1.78 times more volatile than TCW ETF Trust. It trades about 0.13 of its potential returns per unit of risk. TCW ETF Trust is currently generating about 0.15 per unit of risk. If you would invest  3,075  in iShares Small Cap on September 12, 2024 and sell it today you would earn a total of  429.00  from holding iShares Small Cap or generate 13.95% return on investment over 90 days.

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

iShares Small Cap  vs.  TCW ETF Trust

iShares Small Cap

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Small Cap are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, IShares Small disclosed solid returns over the last few months and may actually be approaching a breakup point.

TCW ETF Trust

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in TCW ETF Trust are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, TCW ETF may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares Small and TCW ETF

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

The idea behind iShares Small Cap and TCW ETF Trust 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.