Correlation Between IShares India and IShares IG

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Can any of the company-specific risk be diversified away by investing in both IShares India and IShares IG 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 India and IShares IG into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares India Index and iShares IG Corporate, you can compare the effects of market volatilities on IShares India and IShares IG 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 India with a short position of IShares IG. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares India and IShares IG.

Diversification Opportunities for IShares India and IShares IG

0.78
  Correlation Coefficient

Poor diversification

The 3 months correlation between IShares and IShares is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding iShares India Index and iShares IG Corporate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares IG Corporate and IShares India 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 India Index are associated (or correlated) with IShares IG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares IG Corporate has no effect on the direction of IShares India i.e., IShares India and IShares IG go up and down completely randomly.

Pair Corralation between IShares India and IShares IG

Assuming the 90 days trading horizon iShares India Index is expected to generate 1.66 times more return on investment than IShares IG. However, IShares India is 1.66 times more volatile than iShares IG Corporate. It trades about 0.0 of its potential returns per unit of risk. iShares IG Corporate is currently generating about -0.12 per unit of risk. If you would invest  5,747  in iShares India Index on September 14, 2024 and sell it today you would earn a total of  1.00  from holding iShares India Index or generate 0.02% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

iShares India Index  vs.  iShares IG Corporate

 Performance 
       Timeline  
iShares India Index 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days iShares India Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, IShares India is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.
iShares IG Corporate 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days iShares IG Corporate has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, IShares IG is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

IShares India and IShares IG Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with IShares India and IShares IG

The main advantage of trading using opposite IShares India and IShares IG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares India position performs unexpectedly, IShares IG 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 IG will offset losses from the drop in IShares IG's long position.
The idea behind iShares India Index and iShares IG Corporate 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.
Check out your portfolio center.
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.

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