Correlation Between IShares Financials and IShares Technology

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

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

Diversification Opportunities for IShares Financials and IShares Technology

0.41

Correlation Coefficient

IShares Financials  IShares Technology

Very weak diversification

The 3 months correlation between IShares and IShares is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding iShares Financials ETF and iShares Technology ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Technology ETF and IShares Financials 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 Financials ETF are associated (or correlated) with IShares Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Technology ETF has no effect on the direction of IShares Financials i.e., IShares Financials and IShares Technology go up and down completely randomly.

Pair Corralation between IShares Financials and IShares Technology

Considering the 90-day investment horizon iShares Financials ETF is expected to generate 0.59 times more return on investment than IShares Technology. However, iShares Financials ETF is 1.69 times less risky than IShares Technology. It trades about -0.13 of its potential returns per unit of risk. iShares Technology ETF is currently generating about -0.13 per unit of risk. If you would invest  9,452  in iShares Financials ETF on February 3, 2024 and sell it today you would lose (240.00) from holding iShares Financials ETF or give up 2.54% of portfolio value over 90 days.

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

iShares Financials ETF  vs.  iShares Technology ETF

iShares Financials ETF

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Financials ETF are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, IShares Financials may actually be approaching a critical reversion point that can send shares even higher in June 2024.

iShares Technology ETF

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Technology ETF has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, IShares Technology is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with IShares Financials and IShares Technology

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

The idea behind iShares Financials ETF and iShares Technology ETF 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.