Correlation Between IShares Conservative and IShares IG

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

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

Diversification Opportunities for IShares Conservative and IShares IG

0.71

Correlation Coefficient

IShares Conservative  IShares IG

Poor diversification

The 3 months correlation between IShares and IShares is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding iShares Conservative Strategic and iShares IG Corporate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares IG Corporate and IShares Conservative 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 Conservative Strategic are associated (or correlated) with IShares IG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares IG Corporate has no effect on the direction of IShares Conservative i.e., IShares Conservative and IShares IG go up and down completely randomly.

Pair Corralation between IShares Conservative and IShares IG

Assuming the 90 days trading horizon iShares Conservative Strategic is expected to generate 0.61 times more return on investment than IShares IG. However, iShares Conservative Strategic is 1.64 times less risky than IShares IG. It trades about 0.03 of its potential returns per unit of risk. iShares IG Corporate is currently generating about -0.06 per unit of risk. If you would invest  1,816  in iShares Conservative Strategic on September 12, 2024 and sell it today you would earn a total of  9.00  from holding iShares Conservative Strategic or generate 0.5% return on investment over 90 days.

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

iShares Conservative Strategic  vs.  iShares IG Corporate

iShares Conservative

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Conservative Strategic are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, IShares Conservative is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

iShares IG Corporate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares IG Corporate has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, IShares IG is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with IShares Conservative and IShares IG

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

The idea behind iShares Conservative Strategic and iShares IG Corporate 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.

Check out your portfolio center.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.