Correlation Between IShares Broad and Litman Gregory

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

Diversification Opportunities for IShares Broad and Litman Gregory

0.53

Correlation Coefficient

IShares Broad  Litman Gregory

Very weak diversification

The 3 months correlation between IShares and Litman is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding iShares Broad USD and Litman Gregory Funds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Litman Gregory Funds 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 Litman Gregory. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Litman Gregory Funds has no effect on the direction of IShares Broad i.e., IShares Broad and Litman Gregory go up and down completely randomly.

Pair Corralation between IShares Broad and Litman Gregory

Given the investment horizon of 90 days IShares Broad is expected to generate 1.17 times less return on investment than Litman Gregory. But when comparing it to its historical volatility, iShares Broad USD is 2.5 times less risky than Litman Gregory. It trades about 0.08 of its potential returns per unit of risk. Litman Gregory Funds is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,142  in Litman Gregory Funds on December 29, 2024 and sell it today you would earn a total of  19.00  from holding Litman Gregory Funds or generate 1.66% return on investment over 90 days.

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

iShares Broad USD  vs.  Litman Gregory Funds

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 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable forward indicators, IShares Broad is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Litman Gregory Funds

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Litman Gregory Funds are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Litman Gregory is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with IShares Broad and Litman Gregory

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

The idea behind iShares Broad USD and Litman Gregory Funds 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.