Correlation Between IShares Aerospace and NATO

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

Diversification Opportunities for IShares Aerospace and NATO

0.71

Correlation Coefficient

IShares Aerospace  NATO

Poor diversification

The 3 months correlation between IShares and NATO is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding iShares Aerospace Defense and NATO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NATO 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 NATO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NATO has no effect on the direction of IShares Aerospace i.e., IShares Aerospace and NATO go up and down completely randomly.

Pair Corralation between IShares Aerospace and NATO

Considering the 90-day investment horizon iShares Aerospace Defense is expected to generate 0.79 times more return on investment than NATO. However, iShares Aerospace Defense is 1.27 times less risky than NATO. It trades about 0.06 of its potential returns per unit of risk. NATO is currently generating about 0.0 per unit of risk. If you would invest  10,977  in iShares Aerospace Defense on September 20, 2024 and sell it today you would earn a total of  3,326  from holding iShares Aerospace Defense or generate 30.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	9.7%
Values	Daily Returns

iShares Aerospace Defense  vs.  NATO

iShares Aerospace Defense

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Aerospace Defense has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, IShares Aerospace is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

NATO

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days NATO has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, NATO is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with IShares Aerospace and NATO

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

The idea behind iShares Aerospace Defense and NATO 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.