Correlation Between IShares SP and BNY Mellon

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

By analyzing existing cross correlation between iShares SP Mid Cap and BNY Mellon Innovators, you can compare the effects of market volatilities on IShares SP and BNY Mellon 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 SP with a short position of BNY Mellon. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares SP and BNY Mellon.

Diversification Opportunities for IShares SP and BNY Mellon

0.95

Correlation Coefficient

IShares SP  BNY Mellon

Almost no diversification

The 3 months correlation between IShares and BNY is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding iShares SP Mid Cap and BNY Mellon Innovators in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BNY Mellon Innovators and IShares SP 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 SP Mid Cap are associated (or correlated) with BNY Mellon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BNY Mellon Innovators has no effect on the direction of IShares SP i.e., IShares SP and BNY Mellon go up and down completely randomly.

Pair Corralation between IShares SP and BNY Mellon

Considering the 90-day investment horizon IShares SP is expected to generate 1.44 times less return on investment than BNY Mellon. But when comparing it to its historical volatility, iShares SP Mid Cap is 1.21 times less risky than BNY Mellon. It trades about 0.2 of its potential returns per unit of risk. BNY Mellon Innovators is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  3,146  in BNY Mellon Innovators on September 2, 2024 and sell it today you would earn a total of  559.00  from holding BNY Mellon Innovators or generate 17.77% return on investment over 90 days.

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

iShares SP Mid Cap  vs.  BNY Mellon Innovators

iShares SP Mid

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SP Mid Cap are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain forward-looking indicators, IShares SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

BNY Mellon Innovators

Risk-Adjusted Performance

18 of 100

Solid

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

Pair Trading with IShares SP and BNY Mellon

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

The idea behind iShares SP Mid Cap and BNY Mellon Innovators 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.