Correlation Between IShares SP and Themes Small

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

By analyzing existing cross correlation between iShares SP Small Cap and Themes Small Cap, you can compare the effects of market volatilities on IShares SP and Themes Small 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 Themes Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares SP and Themes Small.

Diversification Opportunities for IShares SP and Themes Small

0.96

Correlation Coefficient

IShares SP  Themes Small

Almost no diversification

The 3 months correlation between IShares and Themes is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding iShares SP Small Cap and Themes Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Themes Small Cap 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 Small Cap are associated (or correlated) with Themes Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Themes Small Cap has no effect on the direction of IShares SP i.e., IShares SP and Themes Small go up and down completely randomly.

Pair Corralation between IShares SP and Themes Small

Considering the 90-day investment horizon IShares SP is expected to generate 1.11 times less return on investment than Themes Small. In addition to that, IShares SP is 1.11 times more volatile than Themes Small Cap. It trades about 0.29 of its total potential returns per unit of risk. Themes Small Cap is currently generating about 0.36 per unit of volatility. If you would invest  3,056  in Themes Small Cap on September 2, 2024 and sell it today you would earn a total of  359.00  from holding Themes Small Cap or generate 11.75% 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 Small Cap  vs.  Themes Small Cap

iShares SP Small

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SP Small Cap are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward-looking indicators, IShares SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Themes Small Cap

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Themes Small Cap are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal fundamental indicators, Themes Small reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares SP and Themes Small

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

The idea behind iShares SP Small Cap and Themes Small Cap 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.