Correlation Between Materials Select and IShares Global

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

Diversification Opportunities for Materials Select and IShares Global

0.9

Correlation Coefficient

Materials Select  IShares Global

Almost no diversification

The 3 months correlation between Materials and IShares is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Materials Select Sector and iShares Global Timber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Global Timber 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 Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Global Timber has no effect on the direction of Materials Select i.e., Materials Select and IShares Global go up and down completely randomly.

Pair Corralation between Materials Select and IShares Global

Considering the 90-day investment horizon Materials Select is expected to generate 1.31 times less return on investment than IShares Global. But when comparing it to its historical volatility, Materials Select Sector is 1.02 times less risky than IShares Global. It trades about 0.04 of its potential returns per unit of risk. iShares Global Timber is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  7,638  in iShares Global Timber on December 21, 2024 and sell it today you would earn a total of  192.00  from holding iShares Global Timber or generate 2.51% return on investment over 90 days.

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

Materials Select Sector  vs.  iShares Global Timber

Materials Select Sector

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Materials Select Sector are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong essential indicators, Materials Select is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

iShares Global Timber

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Global Timber are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, IShares Global is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Materials Select and IShares Global

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

The idea behind Materials Select Sector and iShares Global Timber 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.