Correlation Between IShares Core and Dynamic Active

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

By analyzing existing cross correlation between iShares Core SP and Dynamic Active Mid Cap, you can compare the effects of market volatilities on IShares Core and Dynamic Active 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 Dynamic Active. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Core and Dynamic Active.

Diversification Opportunities for IShares Core and Dynamic Active

0.96

Correlation Coefficient

IShares Core  Dynamic Active

Almost no diversification

The 3 months correlation between IShares and Dynamic is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core SP and Dynamic Active Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dynamic Active Mid 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 SP are associated (or correlated) with Dynamic Active. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dynamic Active Mid has no effect on the direction of IShares Core i.e., IShares Core and Dynamic Active go up and down completely randomly.

Pair Corralation between IShares Core and Dynamic Active

Assuming the 90 days trading horizon IShares Core is expected to generate 1.06 times less return on investment than Dynamic Active. But when comparing it to its historical volatility, iShares Core SP is 1.36 times less risky than Dynamic Active. It trades about 0.22 of its potential returns per unit of risk. Dynamic Active Mid Cap is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  1,307  in Dynamic Active Mid Cap on September 13, 2024 and sell it today you would earn a total of  124.00  from holding Dynamic Active Mid Cap or generate 9.49% return on investment over 90 days.

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

iShares Core SP  vs.  Dynamic Active Mid Cap

iShares Core SP

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core SP are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical indicators, IShares Core may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Dynamic Active Mid

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dynamic Active Mid Cap are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Dynamic Active may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares Core and Dynamic Active

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

The idea behind iShares Core SP and Dynamic Active Mid 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.