Correlation Between Consumer Discretionary and IShares Semiconductor

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

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

Diversification Opportunities for Consumer Discretionary and IShares Semiconductor

0.85

Correlation Coefficient

Consumer Discretionary  IShares Semiconductor

Very poor diversification

The 3 months correlation between Consumer and IShares is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Consumer Discretionary Select and iShares Semiconductor ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Semiconductor ETF and Consumer Discretionary 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 Consumer Discretionary Select are associated (or correlated) with IShares Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Semiconductor ETF has no effect on the direction of Consumer Discretionary i.e., Consumer Discretionary and IShares Semiconductor go up and down completely randomly.

Pair Corralation between Consumer Discretionary and IShares Semiconductor

Considering the 90-day investment horizon Consumer Discretionary Select is expected to under-perform the IShares Semiconductor. But the etf apears to be less risky and, when comparing its historical volatility, Consumer Discretionary Select is 1.59 times less risky than IShares Semiconductor. The etf trades about -0.15 of its potential returns per unit of risk. The iShares Semiconductor ETF is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  21,700  in iShares Semiconductor ETF on December 29, 2024 and sell it today you would lose (2,832) from holding iShares Semiconductor ETF or give up 13.05% of portfolio value over 90 days.

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

Consumer Discretionary Select  vs.  iShares Semiconductor ETF

Consumer Discretionary

Risk-Adjusted Performance

Very Weak

Over the last 90 days Consumer Discretionary Select has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Etf's essential indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the ETF investors.

iShares Semiconductor ETF

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Semiconductor ETF has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Etf's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the ETF investors.

Pair Trading with Consumer Discretionary and IShares Semiconductor

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

The idea behind Consumer Discretionary Select and iShares Semiconductor ETF 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.