Correlation Between Materials Select and IShares Trust

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

By analyzing existing cross correlation between Materials Select Sector and iShares Trust , you can compare the effects of market volatilities on Materials Select and IShares Trust 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 Materials Select with a short position of IShares Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Materials Select and IShares Trust.

Diversification Opportunities for Materials Select and IShares Trust

0.78

Correlation Coefficient

Materials Select  IShares Trust

Poor diversification

The 3 months correlation between Materials and IShares is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Materials Select Sector and iShares Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Trust and Materials Select 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 Materials Select Sector are associated (or correlated) with IShares Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Trust has no effect on the direction of Materials Select i.e., Materials Select and IShares Trust go up and down completely randomly.

Pair Corralation between Materials Select and IShares Trust

Considering the 90-day investment horizon Materials Select Sector is expected to under-perform the IShares Trust. In addition to that, Materials Select is 1.01 times more volatile than iShares Trust . It trades about -0.11 of its total potential returns per unit of risk. iShares Trust is currently generating about -0.03 per unit of volatility. If you would invest  3,067  in iShares Trust on November 28, 2024 and sell it today you would lose (53.00) from holding iShares Trust or give up 1.73% of portfolio value over 90 days.

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

Materials Select Sector  vs.  iShares Trust

Materials Select Sector

Risk-Adjusted Performance

Very Weak

Over the last 90 days Materials Select Sector has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Etf's essential indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

iShares Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, IShares Trust is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Materials Select and IShares Trust

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

The idea behind Materials Select Sector and iShares Trust 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..