Correlation Between IShares Technology and IShares Healthcare

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

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

Diversification Opportunities for IShares Technology and IShares Healthcare

-0.7

Correlation Coefficient

IShares Technology  IShares Healthcare

Excellent diversification

The 3 months correlation between IShares and IShares is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding iShares Technology ETF and iShares Healthcare ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Healthcare ETF and IShares Technology 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 Technology ETF are associated (or correlated) with IShares Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Healthcare ETF has no effect on the direction of IShares Technology i.e., IShares Technology and IShares Healthcare go up and down completely randomly.

Pair Corralation between IShares Technology and IShares Healthcare

Considering the 90-day investment horizon iShares Technology ETF is expected to generate 1.89 times more return on investment than IShares Healthcare. However, IShares Technology is 1.89 times more volatile than iShares Healthcare ETF. It trades about 0.09 of its potential returns per unit of risk. iShares Healthcare ETF is currently generating about -0.14 per unit of risk. If you would invest  14,765  in iShares Technology ETF on August 30, 2024 and sell it today you would earn a total of  1,029  from holding iShares Technology ETF or generate 6.97% return on investment over 90 days.

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

iShares Technology ETF  vs.  iShares Healthcare ETF

iShares Technology ETF

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Technology ETF are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, IShares Technology may actually be approaching a critical reversion point that can send shares even higher in December 2024.

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 current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with IShares Technology and IShares Healthcare

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

The idea behind iShares Technology ETF and iShares Healthcare 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.

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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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.