Correlation Between IShares Semiconductor and Financial Select

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

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

Diversification Opportunities for IShares Semiconductor and Financial Select

-0.64

Correlation Coefficient

IShares Semiconductor  Financial Select

Excellent diversification

The 3 months correlation between IShares and Financial is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding iShares Semiconductor ETF and Financial Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Select Sector and IShares Semiconductor 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 Semiconductor ETF are associated (or correlated) with Financial Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Select Sector has no effect on the direction of IShares Semiconductor i.e., IShares Semiconductor and Financial Select go up and down completely randomly.

Pair Corralation between IShares Semiconductor and Financial Select

Given the investment horizon of 90 days iShares Semiconductor ETF is expected to generate 2.03 times more return on investment than Financial Select. However, IShares Semiconductor is 2.03 times more volatile than Financial Select Sector. It trades about 0.0 of its potential returns per unit of risk. Financial Select Sector is currently generating about -0.24 per unit of risk. If you would invest  21,583  in iShares Semiconductor ETF on September 23, 2024 and sell it today you would lose (101.00) from holding iShares Semiconductor ETF or give up 0.47% of portfolio value over 90 days.

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

iShares Semiconductor ETF  vs.  Financial Select Sector

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.

Financial Select Sector

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Financial Select Sector are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady essential indicators, Financial Select may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares Semiconductor and Financial Select

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

The idea behind iShares Semiconductor ETF and Financial Select Sector 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.