Correlation Between Tech Leaders and IShares Fundamental

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

By analyzing existing cross correlation between Tech Leaders Income and iShares Fundamental Hedged, you can compare the effects of market volatilities on Tech Leaders and IShares Fundamental 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 Tech Leaders with a short position of IShares Fundamental. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tech Leaders and IShares Fundamental.

Diversification Opportunities for Tech Leaders and IShares Fundamental

0.92

Correlation Coefficient

Tech Leaders  IShares Fundamental

Almost no diversification

The 3 months correlation between Tech and IShares is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Tech Leaders Income and iShares Fundamental Hedged in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Fundamental and Tech Leaders 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 Tech Leaders Income are associated (or correlated) with IShares Fundamental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Fundamental has no effect on the direction of Tech Leaders i.e., Tech Leaders and IShares Fundamental go up and down completely randomly.

Pair Corralation between Tech Leaders and IShares Fundamental

Assuming the 90 days trading horizon Tech Leaders Income is expected to generate 1.6 times more return on investment than IShares Fundamental. However, Tech Leaders is 1.6 times more volatile than iShares Fundamental Hedged. It trades about 0.15 of its potential returns per unit of risk. iShares Fundamental Hedged is currently generating about 0.18 per unit of risk. If you would invest  2,278  in Tech Leaders Income on September 3, 2024 and sell it today you would earn a total of  238.00  from holding Tech Leaders Income or generate 10.45% return on investment over 90 days.

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

Tech Leaders Income  vs.  iShares Fundamental Hedged

Tech Leaders Income

Risk-Adjusted Performance

11 of 100

Good

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

iShares Fundamental

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Fundamental Hedged are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, IShares Fundamental may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Tech Leaders and IShares Fundamental

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

The idea behind Tech Leaders Income and iShares Fundamental Hedged 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.