Correlation Between MicroSectors FANG and IShares Consumer

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

Diversification Opportunities for MicroSectors FANG and IShares Consumer

-0.69

Correlation Coefficient

MicroSectors FANG  IShares Consumer

Excellent diversification

The 3 months correlation between MicroSectors and IShares is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and iShares Consumer Staples in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Consumer Staples 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 Consumer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Consumer Staples has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and IShares Consumer go up and down completely randomly.

Pair Corralation between MicroSectors FANG and IShares Consumer

Given the investment horizon of 90 days MicroSectors FANG Index is expected to generate 4.75 times more return on investment than IShares Consumer. However, MicroSectors FANG is 4.75 times more volatile than iShares Consumer Staples. It trades about 0.12 of its potential returns per unit of risk. iShares Consumer Staples is currently generating about 0.02 per unit of risk. If you would invest  6,819  in MicroSectors FANG Index on August 30, 2024 and sell it today you would earn a total of  1,360  from holding MicroSectors FANG Index or generate 19.94% 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 Consumer Staples

MicroSectors FANG Index

Risk-Adjusted Performance

9 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MicroSectors FANG Index are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain technical and fundamental indicators, MicroSectors FANG displayed solid returns over the last few months and may actually be approaching a breakup point.

iShares Consumer Staples

Risk-Adjusted Performance

1 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Consumer Staples are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, IShares Consumer is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with MicroSectors FANG and IShares Consumer

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

The idea behind MicroSectors FANG Index and iShares Consumer Staples 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.