Correlation Between IShares NASDAQ and IShares Diversified

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

By analyzing existing cross correlation between iShares NASDAQ 100 and iShares Diversified Commodity, you can compare the effects of market volatilities on IShares NASDAQ and IShares Diversified 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 NASDAQ with a short position of IShares Diversified. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares NASDAQ and IShares Diversified.

Diversification Opportunities for IShares NASDAQ and IShares Diversified

-0.54

Correlation Coefficient

IShares NASDAQ  IShares Diversified

Excellent diversification

The 3 months correlation between IShares and IShares is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding iShares NASDAQ 100 and iShares Diversified Commodity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Diversified and IShares NASDAQ 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 NASDAQ 100 are associated (or correlated) with IShares Diversified. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Diversified has no effect on the direction of IShares NASDAQ i.e., IShares NASDAQ and IShares Diversified go up and down completely randomly.

Pair Corralation between IShares NASDAQ and IShares Diversified

Assuming the 90 days trading horizon iShares NASDAQ 100 is expected to generate 1.36 times more return on investment than IShares Diversified. However, IShares NASDAQ is 1.36 times more volatile than iShares Diversified Commodity. It trades about 0.13 of its potential returns per unit of risk. iShares Diversified Commodity is currently generating about -0.01 per unit of risk. If you would invest  59,260  in iShares NASDAQ 100 on September 22, 2024 and sell it today you would earn a total of  58,360  from holding iShares NASDAQ 100 or generate 98.48% return on investment over 90 days.

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

iShares NASDAQ 100  vs.  iShares Diversified Commodity

iShares NASDAQ 100

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares NASDAQ 100 are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, IShares NASDAQ unveiled solid returns over the last few months and may actually be approaching a breakup point.

iShares Diversified

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Diversified Commodity has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, IShares Diversified is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with IShares NASDAQ and IShares Diversified

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

The idea behind iShares NASDAQ 100 and iShares Diversified Commodity 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.