Correlation Between IShares Fundamental and North American

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

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

Diversification Opportunities for IShares Fundamental and North American

0.91

Correlation Coefficient

IShares Fundamental  North American

Almost no diversification

The 3 months correlation between IShares and North is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding iShares Fundamental Hedged and North American Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on North American Financial and IShares Fundamental 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 Fundamental Hedged are associated (or correlated) with North American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of North American Financial has no effect on the direction of IShares Fundamental i.e., IShares Fundamental and North American go up and down completely randomly.

Pair Corralation between IShares Fundamental and North American

Assuming the 90 days trading horizon IShares Fundamental is expected to generate 3.59 times less return on investment than North American. But when comparing it to its historical volatility, iShares Fundamental Hedged is 2.13 times less risky than North American. It trades about 0.19 of its potential returns per unit of risk. North American Financial is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest  554.00  in North American Financial on September 5, 2024 and sell it today you would earn a total of  180.00  from holding North American Financial or generate 32.49% return on investment over 90 days.

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

iShares Fundamental Hedged  vs.  North American Financial

iShares Fundamental

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Fundamental Hedged are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, IShares Fundamental may actually be approaching a critical reversion point that can send shares even higher in January 2025.

North American Financial

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in North American Financial are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, North American displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares Fundamental and North American

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

The idea behind iShares Fundamental Hedged and North American Financial 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.