Correlation Between IShares Canadian and Western Investment

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

Diversification Opportunities for IShares Canadian and Western Investment

0.22

Correlation Coefficient

IShares Canadian  Western Investment

Modest diversification

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

Pair Corralation between IShares Canadian and Western Investment

Assuming the 90 days trading horizon IShares Canadian is expected to generate 6.3 times less return on investment than Western Investment. But when comparing it to its historical volatility, iShares Canadian HYBrid is 16.54 times less risky than Western Investment. It trades about 0.16 of its potential returns per unit of risk. Western Investment is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  42.00  in Western Investment on September 13, 2024 and sell it today you would earn a total of  5.00  from holding Western Investment or generate 11.9% 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.  Western Investment

iShares Canadian HYBrid

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Canadian HYBrid are ranked lower than 12 (%) 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.

Western Investment

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Western Investment are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Western Investment showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares Canadian and Western Investment

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

The idea behind iShares Canadian HYBrid and Western Investment 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.