Correlation Between IShares Aerospace and IShares Global

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

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

Diversification Opportunities for IShares Aerospace and IShares Global

0.91

Correlation Coefficient

IShares Aerospace  IShares Global

Almost no diversification

The 3 months correlation between IShares and IShares is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding iShares Aerospace Defense and iShares Global Industrials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Global Indus and IShares Aerospace 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 Aerospace Defense are associated (or correlated) with IShares Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Global Indus has no effect on the direction of IShares Aerospace i.e., IShares Aerospace and IShares Global go up and down completely randomly.

Pair Corralation between IShares Aerospace and IShares Global

Considering the 90-day investment horizon iShares Aerospace Defense is expected to generate 1.49 times more return on investment than IShares Global. However, IShares Aerospace is 1.49 times more volatile than iShares Global Industrials. It trades about 0.13 of its potential returns per unit of risk. iShares Global Industrials is currently generating about 0.14 per unit of risk. If you would invest  14,244  in iShares Aerospace Defense on September 2, 2024 and sell it today you would earn a total of  1,313  from holding iShares Aerospace Defense or generate 9.22% return on investment over 90 days.

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

iShares Aerospace Defense  vs.  iShares Global Industrials

iShares Aerospace Defense

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Aerospace Defense are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, IShares Aerospace may actually be approaching a critical reversion point that can send shares even higher in January 2025.

iShares Global Indus

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Global Industrials are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent basic indicators, IShares Global may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares Aerospace and IShares Global

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

The idea behind iShares Aerospace Defense and iShares Global Industrials 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.