Correlation Between IShares Healthcare and IShares Basic

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

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

Diversification Opportunities for IShares Healthcare and IShares Basic

-0.01

Correlation Coefficient

IShares Healthcare  IShares Basic

Good diversification

The 3 months correlation between IShares and IShares is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding iShares Healthcare ETF and iShares Basic Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Basic Materials and IShares Healthcare 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 Healthcare ETF are associated (or correlated) with IShares Basic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Basic Materials has no effect on the direction of IShares Healthcare i.e., IShares Healthcare and IShares Basic go up and down completely randomly.

Pair Corralation between IShares Healthcare and IShares Basic

Considering the 90-day investment horizon iShares Healthcare ETF is expected to under-perform the IShares Basic. But the etf apears to be less risky and, when comparing its historical volatility, iShares Healthcare ETF is 1.27 times less risky than IShares Basic. The etf trades about -0.11 of its potential returns per unit of risk. The iShares Basic Materials is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  13,987  in iShares Basic Materials on September 5, 2024 and sell it today you would earn a total of  734.00  from holding iShares Basic Materials or generate 5.25% return on investment over 90 days.

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

iShares Healthcare ETF  vs.  iShares Basic Materials

iShares Healthcare ETF

Risk-Adjusted Performance

0 of 100

Very Weak

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

iShares Basic Materials

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Basic Materials are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, IShares Basic is not utilizing all of its potentials. The new stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with IShares Healthcare and IShares Basic

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

The idea behind iShares Healthcare ETF and iShares Basic Materials 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.