Correlation Between IShares Canadian and IShares 1

Can any of the company-specific risk be diversified away by investing in both IShares Canadian and IShares 1 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 Canadian and IShares 1 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between iShares Canadian Government and iShares 1 10Yr Laddered, you can compare the effects of market volatilities on IShares Canadian and IShares 1 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 Canadian with a short position of IShares 1. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Canadian and IShares 1.

Diversification Opportunities for IShares Canadian and IShares 1

0.69

Correlation Coefficient

IShares Canadian  IShares 1

Poor diversification

The 3 months correlation between IShares and IShares is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding iShares Canadian Government and iShares 1 10Yr Laddered in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares 1 10Yr and IShares Canadian 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 Canadian Government are associated (or correlated) with IShares 1. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares 1 10Yr has no effect on the direction of IShares Canadian i.e., IShares Canadian and IShares 1 go up and down completely randomly.

Pair Corralation between IShares Canadian and IShares 1

Assuming the 90 days trading horizon IShares Canadian is expected to generate 2.92 times less return on investment than IShares 1. In addition to that, IShares Canadian is 1.71 times more volatile than iShares 1 10Yr Laddered. It trades about 0.02 of its total potential returns per unit of risk. iShares 1 10Yr Laddered is currently generating about 0.11 per unit of volatility. If you would invest  1,761  in iShares 1 10Yr Laddered on September 5, 2024 and sell it today you would earn a total of  26.00  from holding iShares 1 10Yr Laddered or generate 1.48% return on investment over 90 days.

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

iShares Canadian Government  vs.  iShares 1 10Yr Laddered

iShares Canadian Gov

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Canadian Government are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental drivers, IShares Canadian is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

iShares 1 10Yr

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares 1 10Yr Laddered are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical indicators, IShares 1 is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with IShares Canadian and IShares 1

The main advantage of trading using opposite IShares Canadian and IShares 1 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Canadian position performs unexpectedly, IShares 1 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 1 will offset losses from the drop in IShares 1's long position.

The idea behind iShares Canadian Government and iShares 1 10Yr Laddered 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.