Correlation Between IShares Smart and IShares Broad

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

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

Diversification Opportunities for IShares Smart and IShares Broad

0.66

Correlation Coefficient

IShares Smart  IShares Broad

Poor diversification

The 3 months correlation between IShares and IShares is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding iShares Smart City and iShares Broad High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Broad High and IShares Smart 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 Smart City are associated (or correlated) with IShares Broad. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Broad High has no effect on the direction of IShares Smart i.e., IShares Smart and IShares Broad go up and down completely randomly.

Pair Corralation between IShares Smart and IShares Broad

Assuming the 90 days trading horizon iShares Smart City is expected to generate 3.91 times more return on investment than IShares Broad. However, IShares Smart is 3.91 times more volatile than iShares Broad High. It trades about 0.25 of its potential returns per unit of risk. iShares Broad High is currently generating about 0.14 per unit of risk. If you would invest  676.00  in iShares Smart City on September 11, 2024 and sell it today you would earn a total of  94.00  from holding iShares Smart City or generate 13.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.92%
Values	Daily Returns

iShares Smart City  vs.  iShares Broad High

iShares Smart City

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Smart City are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, IShares Smart unveiled solid returns over the last few months and may actually be approaching a breakup point.

iShares Broad High

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Broad High are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, IShares Broad is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with IShares Smart and IShares Broad

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

The idea behind iShares Smart City and iShares Broad High 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.