Correlation Between IShares Broad and VanEck Fallen

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

By analyzing existing cross correlation between iShares Broad USD and VanEck Fallen Angel, you can compare the effects of market volatilities on IShares Broad and VanEck Fallen 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 Broad with a short position of VanEck Fallen. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Broad and VanEck Fallen.

Diversification Opportunities for IShares Broad and VanEck Fallen

0.9

Correlation Coefficient

IShares Broad  VanEck Fallen

Almost no diversification

The 3 months correlation between IShares and VanEck is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding iShares Broad USD and VanEck Fallen Angel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck Fallen Angel and IShares Broad 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 Broad USD are associated (or correlated) with VanEck Fallen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck Fallen Angel has no effect on the direction of IShares Broad i.e., IShares Broad and VanEck Fallen go up and down completely randomly.

Pair Corralation between IShares Broad and VanEck Fallen

Given the investment horizon of 90 days iShares Broad USD is expected to generate 0.84 times more return on investment than VanEck Fallen. However, iShares Broad USD is 1.19 times less risky than VanEck Fallen. It trades about 0.21 of its potential returns per unit of risk. VanEck Fallen Angel is currently generating about 0.14 per unit of risk. If you would invest  3,655  in iShares Broad USD on September 3, 2024 and sell it today you would earn a total of  98.00  from holding iShares Broad USD or generate 2.68% return on investment over 90 days.

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

iShares Broad USD  vs.  VanEck Fallen Angel

iShares Broad USD

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Broad USD are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical indicators, IShares Broad is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

VanEck Fallen Angel

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in VanEck Fallen Angel are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent technical and fundamental indicators, VanEck Fallen is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with IShares Broad and VanEck Fallen

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

The idea behind iShares Broad USD and VanEck Fallen Angel 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.