Correlation Between MicroSectors FANG and IShares Broad

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

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

Diversification Opportunities for MicroSectors FANG and IShares Broad

-0.77

Correlation Coefficient

MicroSectors FANG  IShares Broad

Pay attention - limited upside

The 3 months correlation between MicroSectors and IShares is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and iShares Broad USD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Broad USD and MicroSectors FANG 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 MicroSectors FANG Index are associated (or correlated) with IShares Broad. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Broad USD has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and IShares Broad go up and down completely randomly.

Pair Corralation between MicroSectors FANG and IShares Broad

Given the investment horizon of 90 days MicroSectors FANG Index is expected to under-perform the IShares Broad. In addition to that, MicroSectors FANG is 19.52 times more volatile than iShares Broad USD. It trades about -0.17 of its total potential returns per unit of risk. iShares Broad USD is currently generating about 0.21 per unit of volatility. If you would invest  3,655  in iShares Broad USD on September 2, 2024 and sell it today you would earn a total of  98.00  from holding iShares Broad USD or generate 2.68% return on investment over 90 days.

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

MicroSectors FANG Index  vs.  iShares Broad USD

MicroSectors FANG Index

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MicroSectors FANG Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Etf's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the fund shareholders.

iShares Broad USD

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Broad USD are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical indicators, IShares Broad is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with MicroSectors FANG and IShares Broad

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

The idea behind MicroSectors FANG Index and iShares Broad USD 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.