Correlation Between IShares Expanded and Technology Select

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

By analyzing existing cross correlation between iShares Expanded Tech Software and Technology Select Sector, you can compare the effects of market volatilities on IShares Expanded and Technology Select 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 Expanded with a short position of Technology Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Expanded and Technology Select.

Diversification Opportunities for IShares Expanded and Technology Select

0.84

Correlation Coefficient

IShares Expanded  Technology Select

Very poor diversification

The 3 months correlation between IShares and Technology is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding iShares Expanded Tech Software and Technology Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Technology Select Sector and IShares Expanded 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 Expanded Tech Software are associated (or correlated) with Technology Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Technology Select Sector has no effect on the direction of IShares Expanded i.e., IShares Expanded and Technology Select go up and down completely randomly.

Pair Corralation between IShares Expanded and Technology Select

Considering the 90-day investment horizon iShares Expanded Tech Software is expected to generate 1.15 times more return on investment than Technology Select. However, IShares Expanded is 1.15 times more volatile than Technology Select Sector. It trades about 0.24 of its potential returns per unit of risk. Technology Select Sector is currently generating about 0.11 per unit of risk. If you would invest  8,759  in iShares Expanded Tech Software on September 12, 2024 and sell it today you would earn a total of  1,858  from holding iShares Expanded Tech Software or generate 21.21% return on investment over 90 days.

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

iShares Expanded Tech Software  vs.  Technology Select Sector

iShares Expanded Tech

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Expanded Tech Software are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, IShares Expanded showed solid returns over the last few months and may actually be approaching a breakup point.

Technology Select Sector

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Technology Select Sector are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain essential indicators, Technology Select may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares Expanded and Technology Select

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

The idea behind iShares Expanded Tech Software and Technology Select Sector 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.