Correlation Between Consumer Discretionary and IShares Expanded

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

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

Diversification Opportunities for Consumer Discretionary and IShares Expanded

0.94

Correlation Coefficient

Consumer Discretionary  IShares Expanded

Almost no diversification

The 3 months correlation between Consumer and IShares is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Consumer Discretionary Select and iShares Expanded Tech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Expanded Tech and Consumer Discretionary 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 Consumer Discretionary Select are associated (or correlated) with IShares Expanded. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Expanded Tech has no effect on the direction of Consumer Discretionary i.e., Consumer Discretionary and IShares Expanded go up and down completely randomly.

Pair Corralation between Consumer Discretionary and IShares Expanded

Considering the 90-day investment horizon Consumer Discretionary Select is expected to generate 1.07 times more return on investment than IShares Expanded. However, Consumer Discretionary is 1.07 times more volatile than iShares Expanded Tech. It trades about 0.19 of its potential returns per unit of risk. iShares Expanded Tech is currently generating about 0.14 per unit of risk. If you would invest  19,918  in Consumer Discretionary Select on October 1, 2024 and sell it today you would earn a total of  3,056  from holding Consumer Discretionary Select or generate 15.34% return on investment over 90 days.

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

Consumer Discretionary Select  vs.  iShares Expanded Tech

Consumer Discretionary

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Consumer Discretionary Select are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak essential indicators, Consumer Discretionary showed solid returns over the last few months and may actually be approaching a breakup point.

iShares Expanded Tech

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Expanded Tech are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, IShares Expanded may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Consumer Discretionary and IShares Expanded

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

The idea behind Consumer Discretionary Select and iShares Expanded Tech 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.