Correlation Between IShares Technology and IShares Semiconductor

Can any of the company-specific risk be diversified away by investing in both IShares Technology and IShares Semiconductor 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 Semiconductor 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 Semiconductor ETF, you can compare the effects of market volatilities on IShares Technology and IShares Semiconductor 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 Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Technology and IShares Semiconductor.

Diversification Opportunities for IShares Technology and IShares Semiconductor

0.34

Correlation Coefficient

IShares Technology  IShares Semiconductor

Weak diversification

The 3 months correlation between IShares and IShares is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding iShares Technology ETF and iShares Semiconductor ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Semiconductor 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 Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Semiconductor ETF has no effect on the direction of IShares Technology i.e., IShares Technology and IShares Semiconductor go up and down completely randomly.

Pair Corralation between IShares Technology and IShares Semiconductor

Considering the 90-day investment horizon iShares Technology ETF is expected to generate 0.63 times more return on investment than IShares Semiconductor. However, iShares Technology ETF is 1.59 times less risky than IShares Semiconductor. It trades about 0.18 of its potential returns per unit of risk. iShares Semiconductor ETF is currently generating about 0.04 per unit of risk. If you would invest  14,094  in iShares Technology ETF on September 4, 2024 and sell it today you would earn a total of  2,008  from holding iShares Technology ETF or generate 14.25% return on investment over 90 days.

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

iShares Technology ETF  vs.  iShares Semiconductor ETF

iShares Technology ETF

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Technology ETF are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, IShares Technology showed solid returns over the last few months and may actually be approaching a breakup point.

iShares Semiconductor ETF

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Semiconductor ETF are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, IShares Semiconductor is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares Technology and IShares Semiconductor

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

The idea behind iShares Technology ETF and iShares Semiconductor 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.