Correlation Between IShares VII and Source KBW

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

Diversification Opportunities for IShares VII and Source KBW

0.66

Correlation Coefficient

IShares VII  Source KBW

Poor diversification

The 3 months correlation between IShares and Source is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding iShares VII PLC and Source KBW NASDAQ in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Source KBW NASDAQ 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 KBW. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Source KBW NASDAQ has no effect on the direction of IShares VII i.e., IShares VII and Source KBW go up and down completely randomly.

Pair Corralation between IShares VII and Source KBW

Assuming the 90 days trading horizon iShares VII PLC is expected to generate 0.63 times more return on investment than Source KBW. However, iShares VII PLC is 1.58 times less risky than Source KBW. It trades about -0.14 of its potential returns per unit of risk. Source KBW NASDAQ is currently generating about -0.18 per unit of risk. If you would invest  25,115  in iShares VII PLC on December 11, 2024 and sell it today you would lose (1,870) from holding iShares VII PLC or give up 7.45% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.31%
Values	Daily Returns

iShares VII PLC  vs.  Source KBW NASDAQ

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 latest unsteady performance, the Etf's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the Exchange Traded Fund stockholders.

Source KBW NASDAQ

Risk-Adjusted Performance

Very Weak

Over the last 90 days Source KBW NASDAQ has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Etf's forward-looking signals remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the fund shareholders.

Pair Trading with IShares VII and Source KBW

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

The idea behind iShares VII PLC and Source KBW NASDAQ 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.