Correlation Between IShares VII and Deka STOXX

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

By analyzing existing cross correlation between iShares VII PLC and Deka STOXX Europe, you can compare the effects of market volatilities on IShares VII and Deka STOXX 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 VII with a short position of Deka STOXX. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares VII and Deka STOXX.

Diversification Opportunities for IShares VII and Deka STOXX

0.48

Correlation Coefficient

IShares VII  Deka STOXX

Very weak diversification

The 3 months correlation between IShares and Deka is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding iShares VII PLC and Deka STOXX Europe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deka STOXX Europe and IShares VII 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 VII PLC are associated (or correlated) with Deka STOXX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deka STOXX Europe has no effect on the direction of IShares VII i.e., IShares VII and Deka STOXX go up and down completely randomly.

Pair Corralation between IShares VII and Deka STOXX

Assuming the 90 days trading horizon IShares VII is expected to generate 1.84 times less return on investment than Deka STOXX. But when comparing it to its historical volatility, iShares VII PLC is 1.11 times less risky than Deka STOXX. It trades about 0.09 of its potential returns per unit of risk. Deka STOXX Europe is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  2,581  in Deka STOXX Europe on September 17, 2024 and sell it today you would earn a total of  320.00  from holding Deka STOXX Europe or generate 12.4% return on investment over 90 days.

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

iShares VII PLC  vs.  Deka STOXX Europe

iShares VII PLC

Risk-Adjusted Performance

7 of 100

OK

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

Deka STOXX Europe

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Deka STOXX Europe are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Deka STOXX may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares VII and Deka STOXX

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

The idea behind iShares VII PLC and Deka STOXX Europe 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.