Correlation Between IShares Canadian and Dynamic Active

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

By analyzing existing cross correlation between iShares Canadian Select and Dynamic Active Canadian, you can compare the effects of market volatilities on IShares Canadian and Dynamic Active 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 Dynamic Active. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Canadian and Dynamic Active.

Diversification Opportunities for IShares Canadian and Dynamic Active

0.92

Correlation Coefficient

IShares Canadian  Dynamic Active

Almost no diversification

The 3 months correlation between IShares and Dynamic is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding iShares Canadian Select and Dynamic Active Canadian in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dynamic Active Canadian 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 Select are associated (or correlated) with Dynamic Active. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dynamic Active Canadian has no effect on the direction of IShares Canadian i.e., IShares Canadian and Dynamic Active go up and down completely randomly.

Pair Corralation between IShares Canadian and Dynamic Active

Assuming the 90 days trading horizon iShares Canadian Select is expected to generate 0.9 times more return on investment than Dynamic Active. However, iShares Canadian Select is 1.11 times less risky than Dynamic Active. It trades about -0.05 of its potential returns per unit of risk. Dynamic Active Canadian is currently generating about -0.07 per unit of risk. If you would invest  3,231  in iShares Canadian Select on November 29, 2024 and sell it today you would lose (41.00) from holding iShares Canadian Select or give up 1.27% of portfolio value over 90 days.

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

iShares Canadian Select  vs.  Dynamic Active Canadian

iShares Canadian Select

Risk-Adjusted Performance

Very Weak

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

Dynamic Active Canadian

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dynamic Active Canadian has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Dynamic Active 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 Dynamic Active

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

The idea behind iShares Canadian Select and Dynamic Active Canadian 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.