Correlation Between IShares Broad and IShares ETF

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

Diversification Opportunities for IShares Broad and IShares ETF

0.91

Correlation Coefficient

IShares Broad  IShares ETF

Almost no diversification

The 3 months correlation between IShares and IShares is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding iShares Broad USD and iShares ETF Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares ETF Trust 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 IShares ETF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares ETF Trust has no effect on the direction of IShares Broad i.e., IShares Broad and IShares ETF go up and down completely randomly.

Pair Corralation between IShares Broad and IShares ETF

Given the investment horizon of 90 days IShares Broad is expected to generate 2.2 times less return on investment than IShares ETF. But when comparing it to its historical volatility, iShares Broad USD is 1.22 times less risky than IShares ETF. It trades about 0.07 of its potential returns per unit of risk. iShares ETF Trust is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  2,627  in iShares ETF Trust on December 29, 2024 and sell it today you would earn a total of  66.00  from holding iShares ETF Trust or generate 2.51% 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.  iShares ETF Trust

iShares Broad USD

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Broad USD are ranked lower than 5 (%) 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 current stock price disturbance, may contribute to short-term losses for the investors.

iShares ETF Trust

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares ETF Trust are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical and fundamental indicators, IShares ETF is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with IShares Broad and IShares ETF

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

The idea behind iShares Broad USD and iShares ETF Trust 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.