Correlation Between IShares Core and European Residential

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

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

Diversification Opportunities for IShares Core and European Residential

0.74

Correlation Coefficient

IShares Core  European Residential

Poor diversification

The 3 months correlation between IShares and European is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core Canadian and European Residential Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on European Residential Real and IShares Core 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 Core Canadian are associated (or correlated) with European Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of European Residential Real has no effect on the direction of IShares Core i.e., IShares Core and European Residential go up and down completely randomly.

Pair Corralation between IShares Core and European Residential

Assuming the 90 days trading horizon IShares Core is expected to generate 19.68 times less return on investment than European Residential. But when comparing it to its historical volatility, iShares Core Canadian is 16.06 times less risky than European Residential. It trades about 0.19 of its potential returns per unit of risk. European Residential Real is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  268.00  in European Residential Real on September 3, 2024 and sell it today you would earn a total of  112.00  from holding European Residential Real or generate 41.79% return on investment over 90 days.

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

iShares Core Canadian  vs.  European Residential Real

iShares Core Canadian

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core Canadian are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical indicators, IShares Core is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

European Residential Real

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in European Residential Real are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, European Residential sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares Core and European Residential

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

The idea behind iShares Core Canadian and European Residential Real 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.