Correlation Between IShares II and IShares SP

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

By analyzing existing cross correlation between iShares II Public and iShares SP 500, you can compare the effects of market volatilities on IShares II and IShares SP 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 II with a short position of IShares SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares II and IShares SP.

Diversification Opportunities for IShares II and IShares SP

-0.28

Correlation Coefficient

IShares II  IShares SP

Very good diversification

The 3 months correlation between IShares and IShares is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding iShares II Public and iShares SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SP 500 and IShares II 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 II Public are associated (or correlated) with IShares SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares SP 500 has no effect on the direction of IShares II i.e., IShares II and IShares SP go up and down completely randomly.

Pair Corralation between IShares II and IShares SP

Assuming the 90 days trading horizon IShares II is expected to generate 6.41 times less return on investment than IShares SP. In addition to that, IShares II is 1.11 times more volatile than iShares SP 500. It trades about 0.04 of its total potential returns per unit of risk. iShares SP 500 is currently generating about 0.28 per unit of volatility. If you would invest  4,927  in iShares SP 500 on September 5, 2024 and sell it today you would earn a total of  809.00  from holding iShares SP 500 or generate 16.42% return on investment over 90 days.

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

iShares II Public  vs.  iShares SP 500

iShares II Public

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares II Public are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, IShares II is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

iShares SP 500

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SP 500 are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, IShares SP unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares II and IShares SP

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

The idea behind iShares II Public and iShares SP 500 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.