Correlation Between IShares VII and Source SP

Can any of the company-specific risk be diversified away by investing in both IShares VII and Source 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 IShares VII and Source SP 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 Source SP 500, you can compare the effects of market volatilities on IShares VII and Source 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 IShares VII with a short position of Source SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares VII and Source SP.

Diversification Opportunities for IShares VII and Source SP

0.53

Correlation Coefficient

IShares VII  Source SP

Very weak diversification

The 3 months correlation between IShares and Source is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding iShares VII PLC and Source SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Source SP 500 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 Source SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Source SP 500 has no effect on the direction of IShares VII i.e., IShares VII and Source SP go up and down completely randomly.

Pair Corralation between IShares VII and Source SP

Assuming the 90 days trading horizon iShares VII PLC is expected to generate 0.7 times more return on investment than Source SP. However, iShares VII PLC is 1.43 times less risky than Source SP. It trades about -0.17 of its potential returns per unit of risk. Source SP 500 is currently generating about -0.29 per unit of risk. If you would invest  24,545  in iShares VII PLC on October 16, 2024 and sell it today you would lose (515.00) from holding iShares VII PLC or give up 2.1% 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.  Source SP 500

iShares VII PLC

Risk-Adjusted Performance

0 of 100

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.

Source SP 500

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Source SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Source SP 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 Source SP

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

The idea behind iShares VII PLC and Source SP 500 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.