Correlation Between IShares Transportation and NATO

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

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

Diversification Opportunities for IShares Transportation and NATO

0.8

Correlation Coefficient

IShares Transportation  NATO

Very poor diversification

The 3 months correlation between IShares and NATO is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding iShares Transportation Average and NATO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NATO and IShares Transportation 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 Transportation Average 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 Transportation i.e., IShares Transportation and NATO go up and down completely randomly.

Pair Corralation between IShares Transportation and NATO

Considering the 90-day investment horizon iShares Transportation Average is expected to generate 1.03 times more return on investment than NATO. However, IShares Transportation is 1.03 times more volatile than NATO. It trades about 0.02 of its potential returns per unit of risk. NATO is currently generating about 0.0 per unit of risk. If you would invest  6,692  in iShares Transportation Average on September 20, 2024 and sell it today you would earn a total of  65.00  from holding iShares Transportation Average or generate 0.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	76.19%
Values	Daily Returns

iShares Transportation Average  vs.  NATO

iShares Transportation

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Transportation Average are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, IShares Transportation is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

NATO

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days NATO has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, NATO is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with IShares Transportation and NATO

The main advantage of trading using opposite IShares Transportation and NATO positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Transportation 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 Transportation Average 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.