Correlation Between IShares Canadian and Brompton Split

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

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

Diversification Opportunities for IShares Canadian and Brompton Split

0.22

Correlation Coefficient

IShares Canadian  Brompton Split

Modest diversification

The 3 months correlation between IShares and Brompton is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding iShares Canadian HYBrid and Brompton Split Banc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brompton Split Banc 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 HYBrid are associated (or correlated) with Brompton Split. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brompton Split Banc has no effect on the direction of IShares Canadian i.e., IShares Canadian and Brompton Split go up and down completely randomly.

Pair Corralation between IShares Canadian and Brompton Split

Assuming the 90 days trading horizon iShares Canadian HYBrid is expected to generate 0.24 times more return on investment than Brompton Split. However, iShares Canadian HYBrid is 4.08 times less risky than Brompton Split. It trades about 0.14 of its potential returns per unit of risk. Brompton Split Banc is currently generating about 0.01 per unit of risk. If you would invest  1,949  in iShares Canadian HYBrid on October 6, 2024 and sell it today you would earn a total of  34.00  from holding iShares Canadian HYBrid or generate 1.74% return on investment over 90 days.

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

iShares Canadian HYBrid  vs.  Brompton Split Banc

iShares Canadian HYBrid

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Canadian HYBrid are ranked lower than 11 (%) 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.

Brompton Split Banc

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Brompton Split Banc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, Brompton Split 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 Brompton Split

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

The idea behind iShares Canadian HYBrid and Brompton Split Banc 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.