Correlation Between IShares IG and IShares Global

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

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

Diversification Opportunities for IShares IG and IShares Global

0.72

Correlation Coefficient

IShares IG  IShares Global

Poor diversification

The 3 months correlation between IShares and IShares is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding iShares IG Corporate and iShares Global Healthcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Global Healthcare and IShares IG 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 IG Corporate are associated (or correlated) with IShares Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Global Healthcare has no effect on the direction of IShares IG i.e., IShares IG and IShares Global go up and down completely randomly.

Pair Corralation between IShares IG and IShares Global

Assuming the 90 days trading horizon iShares IG Corporate is expected to generate 0.75 times more return on investment than IShares Global. However, iShares IG Corporate is 1.33 times less risky than IShares Global. It trades about -0.13 of its potential returns per unit of risk. iShares Global Healthcare is currently generating about -0.28 per unit of risk. If you would invest  2,077  in iShares IG Corporate on September 16, 2024 and sell it today you would lose (79.00) from holding iShares IG Corporate or give up 3.8% of portfolio value over 90 days.

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

iShares IG Corporate  vs.  iShares Global Healthcare

iShares IG Corporate

Risk-Adjusted Performance

0 of 100

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 Global Healthcare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Global Healthcare has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Etf's fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

Pair Trading with IShares IG and IShares Global

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

The idea behind iShares IG Corporate and iShares Global Healthcare 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.