Correlation Between IShares SP and IShares Small

Can any of the company-specific risk be diversified away by investing in both IShares SP and IShares Small 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 Small 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 Small Cap, you can compare the effects of market volatilities on IShares SP and IShares Small 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 Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares SP and IShares Small.

Diversification Opportunities for IShares SP and IShares Small

0.99

Correlation Coefficient

IShares SP  IShares Small

No risk reduction

The 3 months correlation between IShares and IShares is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding iShares SP Mid Cap and iShares Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Small Cap 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 Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Small Cap has no effect on the direction of IShares SP i.e., IShares SP and IShares Small go up and down completely randomly.

Pair Corralation between IShares SP and IShares Small

Assuming the 90 days trading horizon IShares SP is expected to generate 1.13 times less return on investment than IShares Small. But when comparing it to its historical volatility, iShares SP Mid Cap is 1.35 times less risky than IShares Small. It trades about 0.19 of its potential returns per unit of risk. iShares Small Cap is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  4,136  in iShares Small Cap on September 4, 2024 and sell it today you would earn a total of  554.00  from holding iShares Small Cap or generate 13.39% return on investment over 90 days.

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

iShares SP Mid Cap  vs.  iShares Small Cap

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 weak technical indicators, IShares SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

iShares Small Cap

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Small Cap are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, IShares Small displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares SP and IShares Small

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

The idea behind iShares SP Mid Cap and iShares Small Cap 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.