Correlation Between IShares Core and Hamilton MidSmall

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

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

Diversification Opportunities for IShares Core and Hamilton MidSmall

0.7

Correlation Coefficient

IShares Core  Hamilton MidSmall

Poor diversification

The 3 months correlation between IShares and Hamilton is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core SP and Hamilton MidSmall Cap Financia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hamilton MidSmall Cap and IShares Core 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 Core SP are associated (or correlated) with Hamilton MidSmall. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hamilton MidSmall Cap has no effect on the direction of IShares Core i.e., IShares Core and Hamilton MidSmall go up and down completely randomly.

Pair Corralation between IShares Core and Hamilton MidSmall

Assuming the 90 days trading horizon IShares Core is expected to generate 1.61 times less return on investment than Hamilton MidSmall. But when comparing it to its historical volatility, iShares Core SP is 1.37 times less risky than Hamilton MidSmall. It trades about 0.13 of its potential returns per unit of risk. Hamilton MidSmall Cap Financials is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  3,577  in Hamilton MidSmall Cap Financials on October 27, 2024 and sell it today you would earn a total of  118.00  from holding Hamilton MidSmall Cap Financials or generate 3.3% return on investment over 90 days.

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

iShares Core SP  vs.  Hamilton MidSmall Cap Financia

iShares Core SP

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core SP are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, IShares Core is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Hamilton MidSmall Cap

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Hamilton MidSmall Cap Financials are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Hamilton MidSmall may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with IShares Core and Hamilton MidSmall

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

The idea behind iShares Core SP and Hamilton MidSmall Cap Financials 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.