Correlation Between Dynamic Active and IShares Core

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

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

Diversification Opportunities for Dynamic Active and IShares Core

0.99

Correlation Coefficient

Dynamic Active  IShares Core

No risk reduction

The 3 months correlation between Dynamic and IShares is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Dynamic Active Global and iShares Core Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Core Equity and Dynamic Active 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 Dynamic Active Global are associated (or correlated) with IShares Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Core Equity has no effect on the direction of Dynamic Active i.e., Dynamic Active and IShares Core go up and down completely randomly.

Pair Corralation between Dynamic Active and IShares Core

Assuming the 90 days trading horizon Dynamic Active Global is expected to generate 1.73 times more return on investment than IShares Core. However, Dynamic Active is 1.73 times more volatile than iShares Core Equity. It trades about 0.25 of its potential returns per unit of risk. iShares Core Equity is currently generating about 0.28 per unit of risk. If you would invest  5,885  in Dynamic Active Global on September 2, 2024 and sell it today you would earn a total of  936.00  from holding Dynamic Active Global or generate 15.9% return on investment over 90 days.

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

Dynamic Active Global  vs.  iShares Core Equity

Dynamic Active Global

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Dynamic Active Global are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, Dynamic Active displayed solid returns over the last few months and may actually be approaching a breakup point.

iShares Core Equity

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core Equity are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, IShares Core may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Dynamic Active and IShares Core

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

The idea behind Dynamic Active Global and iShares Core Equity 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.

Check out your portfolio center.

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.