Correlation Between IShares Developed and IShares Asia

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

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

Diversification Opportunities for IShares Developed and IShares Asia

0.85

Correlation Coefficient

IShares Developed  IShares Asia

Very poor diversification

The 3 months correlation between IShares and IShares is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding iShares Developed Markets and iShares Asia Property in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Asia Property and IShares Developed 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 Developed Markets are associated (or correlated) with IShares Asia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Asia Property has no effect on the direction of IShares Developed i.e., IShares Developed and IShares Asia go up and down completely randomly.

Pair Corralation between IShares Developed and IShares Asia

Assuming the 90 days trading horizon iShares Developed Markets is expected to generate 0.89 times more return on investment than IShares Asia. However, iShares Developed Markets is 1.12 times less risky than IShares Asia. It trades about -0.16 of its potential returns per unit of risk. iShares Asia Property is currently generating about -0.23 per unit of risk. If you would invest  2,538  in iShares Developed Markets on September 13, 2024 and sell it today you would lose (165.00) from holding iShares Developed Markets or give up 6.5% of portfolio value over 90 days.

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

iShares Developed Markets  vs.  iShares Asia Property

iShares Developed Markets

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Developed Markets has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Etf's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the fund sophisticated investors.

iShares Asia Property

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Asia Property has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Etf's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the fund sophisticated investors.

Pair Trading with IShares Developed and IShares Asia

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

The idea behind iShares Developed Markets and iShares Asia Property 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.