Correlation Between IShares Canadian and BetaPro SP

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

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

Diversification Opportunities for IShares Canadian and BetaPro SP

-0.5

Correlation Coefficient

IShares Canadian  BetaPro SP

Very good diversification

The 3 months correlation between IShares and BetaPro is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding iShares Canadian Short and BetaPro SP TSX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BetaPro SP TSX and IShares Canadian 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 Canadian Short are associated (or correlated) with BetaPro SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BetaPro SP TSX has no effect on the direction of IShares Canadian i.e., IShares Canadian and BetaPro SP go up and down completely randomly.

Pair Corralation between IShares Canadian and BetaPro SP

Assuming the 90 days trading horizon IShares Canadian is expected to generate 6.32 times less return on investment than BetaPro SP. But when comparing it to its historical volatility, iShares Canadian Short is 17.8 times less risky than BetaPro SP. It trades about 0.18 of its potential returns per unit of risk. BetaPro SP TSX is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,604  in BetaPro SP TSX on December 30, 2024 and sell it today you would earn a total of  221.00  from holding BetaPro SP TSX or generate 8.49% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

iShares Canadian Short  vs.  BetaPro SP TSX

iShares Canadian Short

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Canadian Short are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental drivers, IShares Canadian is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

BetaPro SP TSX

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BetaPro SP TSX are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, BetaPro SP may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with IShares Canadian and BetaPro SP

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

The idea behind iShares Canadian Short and BetaPro SP TSX 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.