Correlation Between IShares SP and IShares Short

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

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

Diversification Opportunities for IShares SP and IShares Short

0.37

Correlation Coefficient

IShares SP  IShares Short

Weak diversification

The 3 months correlation between IShares and IShares is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding iShares SP Mid Cap and iShares Short Term in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Short Term and IShares SP 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 SP Mid Cap are associated (or correlated) with IShares Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Short Term has no effect on the direction of IShares SP i.e., IShares SP and IShares Short go up and down completely randomly.

Pair Corralation between IShares SP and IShares Short

Assuming the 90 days trading horizon iShares SP Mid Cap is expected to generate 4.97 times more return on investment than IShares Short. However, IShares SP is 4.97 times more volatile than iShares Short Term. It trades about 0.19 of its potential returns per unit of risk. iShares Short Term is currently generating about 0.13 per unit of risk. If you would invest  2,697  in iShares SP Mid Cap on September 4, 2024 and sell it today you would earn a total of  323.00  from holding iShares SP Mid Cap or generate 11.98% return on investment over 90 days.

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

iShares SP Mid Cap  vs.  iShares Short Term

iShares SP Mid

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SP Mid Cap are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical indicators, IShares SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

iShares Short Term

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Short Term are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward indicators, IShares Short 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 SP and IShares Short

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

The idea behind iShares SP Mid Cap and iShares Short Term 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.