Correlation Between IShares Core and VanEck Defense

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

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

Diversification Opportunities for IShares Core and VanEck Defense

0.83

Correlation Coefficient

IShares Core  VanEck Defense

Very poor diversification

The 3 months correlation between IShares and VanEck is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core SP and VanEck Defense ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck Defense ETF and IShares Core 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 Core SP are associated (or correlated) with VanEck Defense. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck Defense ETF has no effect on the direction of IShares Core i.e., IShares Core and VanEck Defense go up and down completely randomly.

Pair Corralation between IShares Core and VanEck Defense

Assuming the 90 days trading horizon iShares Core SP is expected to generate 0.62 times more return on investment than VanEck Defense. However, iShares Core SP is 1.62 times less risky than VanEck Defense. It trades about 0.04 of its potential returns per unit of risk. VanEck Defense ETF is currently generating about -0.1 per unit of risk. If you would invest  60,448  in iShares Core SP on September 26, 2024 and sell it today you would earn a total of  278.00  from holding iShares Core SP or generate 0.46% return on investment over 90 days.

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

iShares Core SP  vs.  VanEck Defense ETF

iShares Core SP

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core SP are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, IShares Core may actually be approaching a critical reversion point that can send shares even higher in January 2025.

VanEck Defense ETF

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in VanEck Defense ETF are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, VanEck Defense exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares Core and VanEck Defense

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

The idea behind iShares Core SP and VanEck Defense 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.