Correlation Between IShares Broad and IShares STOXX

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

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

Diversification Opportunities for IShares Broad and IShares STOXX

0.31

Correlation Coefficient

IShares Broad  IShares STOXX

Weak diversification

The 3 months correlation between IShares and IShares is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding iShares Broad High and iShares STOXX Europe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares STOXX Europe and IShares Broad 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 Broad High are associated (or correlated) with IShares STOXX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares STOXX Europe has no effect on the direction of IShares Broad i.e., IShares Broad and IShares STOXX go up and down completely randomly.

Pair Corralation between IShares Broad and IShares STOXX

Assuming the 90 days trading horizon iShares Broad High is expected to under-perform the IShares STOXX. But the etf apears to be less risky and, when comparing its historical volatility, iShares Broad High is 3.93 times less risky than IShares STOXX. The etf trades about -0.05 of its potential returns per unit of risk. The iShares STOXX Europe is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,987  in iShares STOXX Europe on September 28, 2024 and sell it today you would earn a total of  71.00  from holding iShares STOXX Europe or generate 3.57% return on investment over 90 days.

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

iShares Broad High  vs.  iShares STOXX Europe

iShares Broad High

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Broad High has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

iShares STOXX Europe

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares STOXX Europe are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, IShares STOXX is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with IShares Broad and IShares STOXX

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

The idea behind iShares Broad High and iShares STOXX Europe 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.