Correlation Between IShares Nikkei and UBS Fund

Can any of the company-specific risk be diversified away by investing in both IShares Nikkei and UBS Fund 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 UBS Fund 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 UBS Fund Solutions, you can compare the effects of market volatilities on IShares Nikkei and UBS Fund 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 UBS Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Nikkei and UBS Fund.

Diversification Opportunities for IShares Nikkei and UBS Fund

0.62

Correlation Coefficient

IShares Nikkei  UBS Fund

Poor diversification

The 3 months correlation between IShares and UBS is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding iShares Nikkei 225 and UBS Fund Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UBS Fund Solutions 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 UBS Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UBS Fund Solutions has no effect on the direction of IShares Nikkei i.e., IShares Nikkei and UBS Fund go up and down completely randomly.

Pair Corralation between IShares Nikkei and UBS Fund

Assuming the 90 days trading horizon iShares Nikkei 225 is expected to generate 1.1 times more return on investment than UBS Fund. However, IShares Nikkei is 1.1 times more volatile than UBS Fund Solutions. It trades about 0.1 of its potential returns per unit of risk. UBS Fund Solutions is currently generating about 0.1 per unit of risk. If you would invest  2,299  in iShares Nikkei 225 on September 5, 2024 and sell it today you would earn a total of  194.00  from holding iShares Nikkei 225 or generate 8.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

iShares Nikkei 225  vs.  UBS Fund Solutions

iShares Nikkei 225

Risk-Adjusted Performance

8 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Nikkei 225 are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, IShares Nikkei may actually be approaching a critical reversion point that can send shares even higher in January 2025.

UBS Fund Solutions

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in UBS Fund Solutions are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak primary indicators, UBS Fund may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares Nikkei and UBS Fund

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

The idea behind iShares Nikkei 225 and UBS Fund Solutions 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.