Correlation Between IShares SP and Dynamic Active

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

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

Diversification Opportunities for IShares SP and Dynamic Active

0.99

Correlation Coefficient

IShares SP  Dynamic Active

No risk reduction

The 3 months correlation between IShares and Dynamic is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding iShares SP Mid Cap and Dynamic Active Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dynamic Active Mid and IShares SP 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 SP Mid Cap are associated (or correlated) with Dynamic Active. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dynamic Active Mid has no effect on the direction of IShares SP i.e., IShares SP and Dynamic Active go up and down completely randomly.

Pair Corralation between IShares SP and Dynamic Active

Assuming the 90 days trading horizon iShares SP Mid Cap is expected to generate 1.09 times more return on investment than Dynamic Active. However, IShares SP is 1.09 times more volatile than Dynamic Active Mid Cap. It trades about 0.26 of its potential returns per unit of risk. Dynamic Active Mid Cap is currently generating about 0.2 per unit of risk. If you would invest  3,125  in iShares SP Mid Cap on August 31, 2024 and sell it today you would earn a total of  529.00  from holding iShares SP Mid Cap or generate 16.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.41%
Values	Daily Returns

iShares SP Mid Cap  vs.  Dynamic Active Mid Cap

iShares SP Mid

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SP Mid Cap are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, IShares SP displayed solid returns over the last few months and may actually be approaching a breakup point.

Dynamic Active Mid

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dynamic Active Mid Cap are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Dynamic Active may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with IShares SP and Dynamic Active

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

The idea behind iShares SP Mid Cap and Dynamic Active Mid Cap 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.