Correlation Between IShares Canadian and Purpose Premium

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

By analyzing existing cross correlation between iShares Canadian Universe and Purpose Premium Yield, you can compare the effects of market volatilities on IShares Canadian and Purpose Premium 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 Canadian with a short position of Purpose Premium. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Canadian and Purpose Premium.

Diversification Opportunities for IShares Canadian and Purpose Premium

-0.06

Correlation Coefficient

IShares Canadian  Purpose Premium

Good diversification

The 3 months correlation between IShares and Purpose is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding iShares Canadian Universe and Purpose Premium Yield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Purpose Premium Yield and IShares Canadian 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 Canadian Universe are associated (or correlated) with Purpose Premium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Purpose Premium Yield has no effect on the direction of IShares Canadian i.e., IShares Canadian and Purpose Premium go up and down completely randomly.

Pair Corralation between IShares Canadian and Purpose Premium

Assuming the 90 days trading horizon iShares Canadian Universe is expected to generate 0.87 times more return on investment than Purpose Premium. However, iShares Canadian Universe is 1.15 times less risky than Purpose Premium. It trades about 0.13 of its potential returns per unit of risk. Purpose Premium Yield is currently generating about 0.01 per unit of risk. If you would invest  2,819  in iShares Canadian Universe on September 5, 2024 and sell it today you would earn a total of  38.00  from holding iShares Canadian Universe or generate 1.35% return on investment over 90 days.

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

iShares Canadian Universe  vs.  Purpose Premium Yield

iShares Canadian Universe

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Canadian Universe are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental drivers, IShares Canadian is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Purpose Premium Yield

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Purpose Premium Yield are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, Purpose Premium is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with IShares Canadian and Purpose Premium

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

The idea behind iShares Canadian Universe and Purpose Premium Yield 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.