Correlation Between IShares Core and IShares Fundamental

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

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

Diversification Opportunities for IShares Core and IShares Fundamental

0.88

Correlation Coefficient

IShares Core  IShares Fundamental

Very poor diversification

The 3 months correlation between IShares and IShares is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core SPTSX and iShares Fundamental Hedged in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Fundamental 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 SPTSX are associated (or correlated) with IShares Fundamental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Fundamental has no effect on the direction of IShares Core i.e., IShares Core and IShares Fundamental go up and down completely randomly.

Pair Corralation between IShares Core and IShares Fundamental

Assuming the 90 days trading horizon iShares Core SPTSX is expected to under-perform the IShares Fundamental. In addition to that, IShares Core is 1.22 times more volatile than iShares Fundamental Hedged. It trades about -0.1 of its total potential returns per unit of risk. iShares Fundamental Hedged is currently generating about -0.07 per unit of volatility. If you would invest  5,644  in iShares Fundamental Hedged on December 1, 2024 and sell it today you would lose (50.00) from holding iShares Fundamental Hedged or give up 0.89% of portfolio value over 90 days.

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

iShares Core SPTSX  vs.  iShares Fundamental Hedged

iShares Core SPTSX

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Core SPTSX has generated negative risk-adjusted returns adding no value to investors with long positions. 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 Fundamental

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Fundamental Hedged has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, IShares Fundamental 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 Core and IShares Fundamental

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

The idea behind iShares Core SPTSX and iShares Fundamental Hedged 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.