Correlation Between IShares VII and Lyxor Index

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

By analyzing existing cross correlation between iShares VII PLC and Lyxor Index Fund, you can compare the effects of market volatilities on IShares VII and Lyxor Index 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 VII with a short position of Lyxor Index. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares VII and Lyxor Index.

Diversification Opportunities for IShares VII and Lyxor Index

0.58

Correlation Coefficient

IShares VII  Lyxor Index

Very weak diversification

The 3 months correlation between IShares and Lyxor is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding iShares VII PLC and Lyxor Index Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lyxor Index Fund and IShares VII 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 VII PLC are associated (or correlated) with Lyxor Index. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lyxor Index Fund has no effect on the direction of IShares VII i.e., IShares VII and Lyxor Index go up and down completely randomly.

Pair Corralation between IShares VII and Lyxor Index

Assuming the 90 days trading horizon iShares VII PLC is expected to under-perform the Lyxor Index. But the etf apears to be less risky and, when comparing its historical volatility, iShares VII PLC is 1.82 times less risky than Lyxor Index. The etf trades about -0.08 of its potential returns per unit of risk. The Lyxor Index Fund is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  11,862  in Lyxor Index Fund on December 29, 2024 and sell it today you would lose (4.00) from holding Lyxor Index Fund or give up 0.03% of portfolio value over 90 days.

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

iShares VII PLC  vs.  Lyxor Index Fund

iShares VII PLC

Risk-Adjusted Performance

Very Weak

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

Lyxor Index Fund

Risk-Adjusted Performance

Very Weak

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

Pair Trading with IShares VII and Lyxor Index

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

The idea behind iShares VII PLC and Lyxor Index Fund 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.