Correlation Between IShares Global and FlexShares Real

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

By analyzing existing cross correlation between iShares Global 100 and FlexShares Real Assets, you can compare the effects of market volatilities on IShares Global and FlexShares Real 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 Global with a short position of FlexShares Real. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Global and FlexShares Real.

Diversification Opportunities for IShares Global and FlexShares Real

0.8

Correlation Coefficient

IShares Global  FlexShares Real

Very poor diversification

The 3 months correlation between IShares and FlexShares is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding iShares Global 100 and FlexShares Real Assets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares Real Assets and IShares Global 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 Global 100 are associated (or correlated) with FlexShares Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares Real Assets has no effect on the direction of IShares Global i.e., IShares Global and FlexShares Real go up and down completely randomly.

Pair Corralation between IShares Global and FlexShares Real

Considering the 90-day investment horizon iShares Global 100 is expected to generate 0.62 times more return on investment than FlexShares Real. However, iShares Global 100 is 1.61 times less risky than FlexShares Real. It trades about 0.39 of its potential returns per unit of risk. FlexShares Real Assets is currently generating about 0.02 per unit of risk. If you would invest  9,037  in iShares Global 100 on March 7, 2024 and sell it today you would earn a total of  353.00  from holding iShares Global 100 or generate 3.91% return on investment over 90 days.

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

iShares Global 100  vs.  FlexShares Real Assets

iShares Global 100

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Global 100 are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very sluggish basic indicators, IShares Global may actually be approaching a critical reversion point that can send shares even higher in July 2024.

FlexShares Real Assets

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in FlexShares Real Assets are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, FlexShares Real is not utilizing all of its potentials. The new stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with IShares Global and FlexShares Real

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

The idea behind iShares Global 100 and FlexShares Real Assets 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.