Correlation Between IShares Semiconductor and Global Real

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

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

Diversification Opportunities for IShares Semiconductor and Global Real

0.75

Correlation Coefficient

IShares Semiconductor  Global Real

Poor diversification

The 3 months correlation between IShares and Global is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding iShares Semiconductor ETF and Global Real Estate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Real Estate and IShares Semiconductor 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 Semiconductor ETF are associated (or correlated) with Global Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Real Estate has no effect on the direction of IShares Semiconductor i.e., IShares Semiconductor and Global Real go up and down completely randomly.

Pair Corralation between IShares Semiconductor and Global Real

Given the investment horizon of 90 days iShares Semiconductor ETF is expected to generate 1.66 times more return on investment than Global Real. However, IShares Semiconductor is 1.66 times more volatile than Global Real Estate. It trades about 0.08 of its potential returns per unit of risk. Global Real Estate is currently generating about 0.03 per unit of risk. If you would invest  16,360  in iShares Semiconductor ETF on January 25, 2024 and sell it today you would earn a total of  4,494  from holding iShares Semiconductor ETF or generate 27.47% return on investment over 90 days.

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

iShares Semiconductor ETF  vs.  Global Real Estate

iShares Semiconductor ETF

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Semiconductor ETF are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, IShares Semiconductor is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Global Real Estate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Global Real Estate has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Global Real is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares Semiconductor and Global Real

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

The idea behind iShares Semiconductor ETF and Global Real Estate 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.