Correlation Between IShares Core and IShares SP

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

Diversification Opportunities for IShares Core and IShares SP

0.36

Correlation Coefficient

IShares Core  IShares SP

Weak diversification

The 3 months correlation between IShares and IShares is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core MSCI and iShares SP Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SP Mid 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 SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares SP Mid has no effect on the direction of IShares Core i.e., IShares Core and IShares SP go up and down completely randomly.

Pair Corralation between IShares Core and IShares SP

Assuming the 90 days trading horizon IShares Core is expected to generate 2.33 times less return on investment than IShares SP. But when comparing it to its historical volatility, iShares Core MSCI is 1.02 times less risky than IShares SP. It trades about 0.08 of its potential returns per unit of risk. iShares SP Mid Cap is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  2,697  in iShares SP Mid Cap on September 4, 2024 and sell it today you would earn a total of  323.00  from holding iShares SP Mid Cap or generate 11.98% return on investment over 90 days.

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

iShares Core MSCI  vs.  iShares SP Mid Cap

iShares Core MSCI

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core MSCI are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental 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 SP Mid

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SP Mid Cap are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical indicators, IShares SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares Core and IShares SP

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

The idea behind iShares Core MSCI and iShares SP Mid Cap 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.