Correlation Between IShares Core and IShares High

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

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

Diversification Opportunities for IShares Core and IShares High

0.85

Correlation Coefficient

IShares Core  IShares High

Very poor diversification

The 3 months correlation between IShares and IShares is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core MSCI and iShares High Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares High Dividend and IShares Core 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 Core MSCI are associated (or correlated) with IShares High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares High Dividend has no effect on the direction of IShares Core i.e., IShares Core and IShares High go up and down completely randomly.

Pair Corralation between IShares Core and IShares High

Assuming the 90 days trading horizon iShares Core MSCI is expected to generate 0.56 times more return on investment than IShares High. However, iShares Core MSCI is 1.78 times less risky than IShares High. It trades about -0.02 of its potential returns per unit of risk. iShares High Dividend is currently generating about -0.05 per unit of risk. If you would invest  2,736  in iShares Core MSCI on October 24, 2024 and sell it today you would lose (26.00) from holding iShares Core MSCI or give up 0.95% of portfolio value over 90 days.

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

iShares Core MSCI  vs.  iShares High Dividend

iShares Core MSCI

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Core MSCI has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, IShares Core is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

iShares High Dividend

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares High Dividend has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, IShares High 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 Core and IShares High

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

The idea behind iShares Core MSCI and iShares High Dividend 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.