Correlation Between IShares Consumer and IShares Industrials

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

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

Diversification Opportunities for IShares Consumer and IShares Industrials

-0.46

Correlation Coefficient

IShares Consumer  IShares Industrials

Very good diversification

The 3 months correlation between IShares and IShares is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding iShares Consumer Staples and iShares Industrials ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Industrials ETF and IShares Consumer 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 Consumer Staples are associated (or correlated) with IShares Industrials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Industrials ETF has no effect on the direction of IShares Consumer i.e., IShares Consumer and IShares Industrials go up and down completely randomly.

Pair Corralation between IShares Consumer and IShares Industrials

Considering the 90-day investment horizon iShares Consumer Staples is expected to under-perform the IShares Industrials. But the etf apears to be less risky and, when comparing its historical volatility, iShares Consumer Staples is 1.5 times less risky than IShares Industrials. The etf trades about -0.01 of its potential returns per unit of risk. The iShares Industrials ETF is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  12,732  in iShares Industrials ETF on September 2, 2024 and sell it today you would earn a total of  1,661  from holding iShares Industrials ETF or generate 13.05% return on investment over 90 days.

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

iShares Consumer Staples  vs.  iShares Industrials ETF

iShares Consumer Staples

Risk-Adjusted Performance

0 of 100

Very Weak

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

iShares Industrials ETF

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Industrials ETF are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, IShares Industrials may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares Consumer and IShares Industrials

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

The idea behind iShares Consumer Staples and iShares Industrials ETF 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.