Correlation Between IShares Financial and IShares Regional

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

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

Diversification Opportunities for IShares Financial and IShares Regional

0.99

Correlation Coefficient

IShares Financial  IShares Regional

No risk reduction

The 3 months correlation between IShares and IShares is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding iShares Financial Services and iShares Regional Banks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Regional Banks and IShares Financial 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 Financial Services are associated (or correlated) with IShares Regional. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Regional Banks has no effect on the direction of IShares Financial i.e., IShares Financial and IShares Regional go up and down completely randomly.

Pair Corralation between IShares Financial and IShares Regional

Considering the 90-day investment horizon IShares Financial is expected to generate 1.14 times less return on investment than IShares Regional. But when comparing it to its historical volatility, iShares Financial Services is 1.53 times less risky than IShares Regional. It trades about 0.19 of its potential returns per unit of risk. iShares Regional Banks is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  4,778  in iShares Regional Banks on September 2, 2024 and sell it today you would earn a total of  868.00  from holding iShares Regional Banks or generate 18.17% return on investment over 90 days.

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

iShares Financial Services  vs.  iShares Regional Banks

iShares Financial

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Financial Services are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, IShares Financial reported solid returns over the last few months and may actually be approaching a breakup point.

iShares Regional Banks

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Regional Banks are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, IShares Regional unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares Financial and IShares Regional

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

The idea behind iShares Financial Services and iShares Regional Banks 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.