Correlation Between NASDAQ UK and ISHARES III

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Can any of the company-specific risk be diversified away by investing in both NASDAQ UK and ISHARES III 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 NASDAQ UK and ISHARES III into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NASDAQ UK and ISHARES III PLC, you can compare the effects of market volatilities on NASDAQ UK and ISHARES III 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 NASDAQ UK with a short position of ISHARES III. Check out your portfolio center. Please also check ongoing floating volatility patterns of NASDAQ UK and ISHARES III.

Diversification Opportunities for NASDAQ UK and ISHARES III

0.0
  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between NASDAQ and ISHARES is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding NASDAQ UK and ISHARES III PLC ISHRS GLOBAL G in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ISHARES III PLC and NASDAQ UK 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 NASDAQ UK are associated (or correlated) with ISHARES III. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ISHARES III PLC has no effect on the direction of NASDAQ UK i.e., NASDAQ UK and ISHARES III go up and down completely randomly.
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Pair Corralation between NASDAQ UK and ISHARES III

If you would invest (100.00)  in ISHARES III PLC on August 30, 2022 and sell it today you would earn a total of  100.00  from holding ISHARES III PLC or generate -100.0% return on investment over 90 days.
Time Period3 Months [change]
DirectionFlat 
StrengthInsignificant
Accuracy0.0%
ValuesDaily Returns

NASDAQ UK  vs.  ISHARES III PLC ISHRS GLOBAL G

 Performance (%) 
       Timeline  

NASDAQ UK and ISHARES III Volatility Contrast

   Predicted Return Density   
       Returns  

NASDAQ UK

Pair trading matchups for NASDAQ UK

The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against NASDAQ UK as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. NASDAQ UK's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, NASDAQ UK's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to NASDAQ UK.

Pair Trading with NASDAQ UK and ISHARES III

The main advantage of trading using opposite NASDAQ UK and ISHARES III positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NASDAQ UK position performs unexpectedly, ISHARES III 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 III will offset losses from the drop in ISHARES III's long position.
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against NASDAQ UK as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. NASDAQ UK's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, NASDAQ UK's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to NASDAQ UK.
The idea behind NASDAQ UK and ISHARES III PLC 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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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 Watchlist Optimization module to optimize watchlists to build efficient portfolio or rebalance existing positions based on mean-variance optimization algorithm.

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