Correlation Between IShares Nikkei and Leverage Shares

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

By analyzing existing cross correlation between iShares Nikkei 225 and Leverage Shares 3x, you can compare the effects of market volatilities on IShares Nikkei and Leverage Shares 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 Nikkei with a short position of Leverage Shares. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Nikkei and Leverage Shares.

Diversification Opportunities for IShares Nikkei and Leverage Shares

0.63

Correlation Coefficient

IShares Nikkei  Leverage Shares

Poor diversification

The 3 months correlation between IShares and Leverage is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding iShares Nikkei 225 and Leverage Shares 3x in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leverage Shares 3x and IShares Nikkei 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 Nikkei 225 are associated (or correlated) with Leverage Shares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leverage Shares 3x has no effect on the direction of IShares Nikkei i.e., IShares Nikkei and Leverage Shares go up and down completely randomly.

Pair Corralation between IShares Nikkei and Leverage Shares

Assuming the 90 days trading horizon iShares Nikkei 225 is expected to under-perform the Leverage Shares. But the etf apears to be less risky and, when comparing its historical volatility, iShares Nikkei 225 is 1.64 times less risky than Leverage Shares. The etf trades about -0.01 of its potential returns per unit of risk. The Leverage Shares 3x is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  410.00  in Leverage Shares 3x on September 26, 2024 and sell it today you would earn a total of  0.00  from holding Leverage Shares 3x or generate 0.0% return on investment over 90 days.

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

iShares Nikkei 225  vs.  Leverage Shares 3x

iShares Nikkei 225

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Nikkei 225 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, IShares Nikkei is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Leverage Shares 3x

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Leverage Shares 3x has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Leverage Shares is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with IShares Nikkei and Leverage Shares

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

The idea behind iShares Nikkei 225 and Leverage Shares 3x 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.