Correlation Between IShares Broad and IShares Trust

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

Diversification Opportunities for IShares Broad and IShares Trust

0.98

Correlation Coefficient

IShares Broad  IShares Trust

Almost no diversification

The 3 months correlation between IShares and IShares is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding iShares Broad USD and iShares Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares 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 Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Trust has no effect on the direction of IShares Broad i.e., IShares Broad and IShares Trust go up and down completely randomly.

Pair Corralation between IShares Broad and IShares Trust

Given the investment horizon of 90 days IShares Broad is expected to generate 1.03 times less return on investment than IShares Trust. But when comparing it to its historical volatility, iShares Broad USD is 1.19 times less risky than IShares Trust. It trades about 0.07 of its potential returns per unit of risk. iShares Trust is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,575  in iShares Trust on December 29, 2024 and sell it today you would earn a total of  30.00  from holding iShares Trust or generate 1.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.39%
Values	Daily Returns

iShares Broad USD  vs.  iShares 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 Trust

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Trust are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively steady technical indicators, IShares Trust is not utilizing all of its potentials. The current stock price chaos, may contribute to medium-term losses for the stakeholders.

Pair Trading with IShares Broad and IShares Trust

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

The idea behind iShares Broad USD and iShares 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.