Correlation Between IShares Industrials and NATO

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

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

Diversification Opportunities for IShares Industrials and NATO

0.88

Correlation Coefficient

IShares Industrials  NATO

Very poor diversification

The 3 months correlation between IShares and NATO is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding iShares Industrials ETF and NATO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NATO and IShares Industrials 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 Industrials ETF 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 Industrials i.e., IShares Industrials and NATO go up and down completely randomly.

Pair Corralation between IShares Industrials and NATO

Considering the 90-day investment horizon iShares Industrials ETF is expected to generate 0.76 times more return on investment than NATO. However, iShares Industrials ETF is 1.31 times less risky than NATO. It trades about 0.04 of its potential returns per unit of risk. NATO is currently generating about 0.02 per unit of risk. If you would invest  13,220  in iShares Industrials ETF on September 24, 2024 and sell it today you would earn a total of  287.50  from holding iShares Industrials ETF or generate 2.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	80.0%
Values	Daily Returns

iShares Industrials ETF  vs.  NATO

iShares Industrials ETF

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Industrials ETF are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively steady basic indicators, IShares Industrials is not utilizing all of its potentials. The latest stock price chaos, may contribute to medium-term losses for the stakeholders.

NATO

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NATO are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, NATO is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with IShares Industrials and NATO

The main advantage of trading using opposite IShares Industrials and NATO positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Industrials 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 Industrials ETF 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.

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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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.