Correlation Between IShares Core and Tech Leaders

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

By analyzing existing cross correlation between iShares Core Equity and Tech Leaders Income, you can compare the effects of market volatilities on IShares Core and Tech Leaders 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 Tech Leaders. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Core and Tech Leaders.

Diversification Opportunities for IShares Core and Tech Leaders

0.91

Correlation Coefficient

IShares Core  Tech Leaders

Almost no diversification

The 3 months correlation between IShares and Tech is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core Equity and Tech Leaders Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tech Leaders Income 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 Equity are associated (or correlated) with Tech Leaders. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tech Leaders Income has no effect on the direction of IShares Core i.e., IShares Core and Tech Leaders go up and down completely randomly.

Pair Corralation between IShares Core and Tech Leaders

Assuming the 90 days trading horizon IShares Core is expected to generate 1.67 times less return on investment than Tech Leaders. But when comparing it to its historical volatility, iShares Core Equity is 1.94 times less risky than Tech Leaders. It trades about 0.11 of its potential returns per unit of risk. Tech Leaders Income is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,453  in Tech Leaders Income on October 4, 2024 and sell it today you would earn a total of  1,036  from holding Tech Leaders Income or generate 71.3% return on investment over 90 days.

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

iShares Core Equity  vs.  Tech Leaders Income

iShares Core Equity

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core Equity are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. 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.

Tech Leaders Income

Risk-Adjusted Performance

3 of 100

Insignificant

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

Pair Trading with IShares Core and Tech Leaders

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

The idea behind iShares Core Equity and Tech Leaders Income 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.