Correlation Between IShares Consumer and Consumer Staples

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

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

Diversification Opportunities for IShares Consumer and Consumer Staples

0.91

Correlation Coefficient

IShares Consumer  Consumer Staples

Almost no diversification

The 3 months correlation between IShares and Consumer is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding iShares Consumer Staples and Consumer Staples Select in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consumer Staples Select and IShares Consumer 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 Consumer Staples are associated (or correlated) with Consumer Staples. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consumer Staples Select has no effect on the direction of IShares Consumer i.e., IShares Consumer and Consumer Staples go up and down completely randomly.

Pair Corralation between IShares Consumer and Consumer Staples

Considering the 90-day investment horizon IShares Consumer is expected to generate 1.46 times less return on investment than Consumer Staples. In addition to that, IShares Consumer is 1.21 times more volatile than Consumer Staples Select. It trades about 0.11 of its total potential returns per unit of risk. Consumer Staples Select is currently generating about 0.2 per unit of volatility. If you would invest  7,422  in Consumer Staples Select on February 6, 2024 and sell it today you would earn a total of  166.00  from holding Consumer Staples Select or generate 2.24% return on investment over 90 days.

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

iShares Consumer Staples  vs.  Consumer Staples Select

iShares Consumer Staples

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Consumer Staples are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, IShares Consumer is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Consumer Staples Select

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Consumer Staples Select are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable essential indicators, Consumer Staples is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with IShares Consumer and Consumer Staples

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

The idea behind iShares Consumer Staples and Consumer Staples Select 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.