Correlation Between IShares Technology and ESSEX

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

Diversification Opportunities for IShares Technology and ESSEX

-0.55

Correlation Coefficient

IShares Technology  ESSEX

Excellent diversification

The 3 months correlation between IShares and ESSEX is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding iShares Technology ETF and ESSEX PORTFOLIO L in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ESSEX PORTFOLIO L 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 ESSEX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ESSEX PORTFOLIO L has no effect on the direction of IShares Technology i.e., IShares Technology and ESSEX go up and down completely randomly.

Pair Corralation between IShares Technology and ESSEX

Considering the 90-day investment horizon iShares Technology ETF is expected to generate 2.73 times more return on investment than ESSEX. However, IShares Technology is 2.73 times more volatile than ESSEX PORTFOLIO L. It trades about 0.13 of its potential returns per unit of risk. ESSEX PORTFOLIO L is currently generating about 0.05 per unit of risk. If you would invest  7,335  in iShares Technology ETF on September 24, 2024 and sell it today you would earn a total of  8,867  from holding iShares Technology ETF or generate 120.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	68.27%
Values	Daily Returns

iShares Technology ETF  vs.  ESSEX PORTFOLIO L

iShares Technology ETF

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Technology ETF are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, IShares Technology may actually be approaching a critical reversion point that can send shares even higher in January 2025.

ESSEX PORTFOLIO L

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with IShares Technology and ESSEX

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

The idea behind iShares Technology ETF and ESSEX PORTFOLIO L 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.