Correlation Between IShares Basic and Foundations Dynamic

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

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

Diversification Opportunities for IShares Basic and Foundations Dynamic

-0.37

Correlation Coefficient

IShares Basic  Foundations Dynamic

Very good diversification

The 3 months correlation between IShares and Foundations is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding iShares Basic Materials and Foundations Dynamic Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Foundations Dynamic and IShares Basic 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 Basic Materials are associated (or correlated) with Foundations Dynamic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Foundations Dynamic has no effect on the direction of IShares Basic i.e., IShares Basic and Foundations Dynamic go up and down completely randomly.

Pair Corralation between IShares Basic and Foundations Dynamic

Considering the 90-day investment horizon iShares Basic Materials is expected to generate 2.65 times more return on investment than Foundations Dynamic. However, IShares Basic is 2.65 times more volatile than Foundations Dynamic Income. It trades about 0.02 of its potential returns per unit of risk. Foundations Dynamic Income is currently generating about -0.01 per unit of risk. If you would invest  14,577  in iShares Basic Materials on August 30, 2024 and sell it today you would earn a total of  114.00  from holding iShares Basic Materials or generate 0.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

iShares Basic Materials  vs.  Foundations Dynamic Income

iShares Basic Materials

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Basic Materials are ranked lower than 1 (%) 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.

Foundations Dynamic

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Foundations Dynamic Income has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Foundations Dynamic is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares Basic and Foundations Dynamic

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

The idea behind iShares Basic Materials and Foundations Dynamic Income 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.