Correlation Between ARK Israel and IShares Semiconductor

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

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

Diversification Opportunities for ARK Israel and IShares Semiconductor

-0.62

Correlation Coefficient

ARK Israel  IShares Semiconductor

Excellent diversification

The 3 months correlation between ARK and IShares is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding ARK Israel Innovative 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 ARK Israel 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 ARK Israel Innovative 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 ARK Israel i.e., ARK Israel and IShares Semiconductor go up and down completely randomly.

Pair Corralation between ARK Israel and IShares Semiconductor

Given the investment horizon of 90 days ARK Israel is expected to generate 1.3 times less return on investment than IShares Semiconductor. But when comparing it to its historical volatility, ARK Israel Innovative is 1.64 times less risky than IShares Semiconductor. It trades about 0.07 of its potential returns per unit of risk. iShares Semiconductor ETF is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  16,916  in iShares Semiconductor ETF on September 23, 2024 and sell it today you would earn a total of  4,566  from holding iShares Semiconductor ETF or generate 26.99% return on investment over 90 days.

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

ARK Israel Innovative  vs.  iShares Semiconductor ETF

ARK Israel Innovative

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ARK Israel Innovative are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, ARK Israel disclosed solid returns over the last few months and may actually be approaching a breakup point.

iShares Semiconductor ETF

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Semiconductor ETF has generated negative risk-adjusted returns adding no value to investors with long positions. 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 ARK Israel and IShares Semiconductor

The main advantage of trading using opposite ARK Israel and IShares Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ARK Israel 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 ARK Israel Innovative 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.