Correlation Between IShares Technology and Technology Select

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

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

Diversification Opportunities for IShares Technology and Technology Select

0.97

Correlation Coefficient

IShares Technology  Technology Select

Almost no diversification

The 3 months correlation between IShares and Technology is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding iShares Technology ETF and Technology Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Technology Select Sector and IShares Technology 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 Technology ETF are associated (or correlated) with Technology Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Technology Select Sector has no effect on the direction of IShares Technology i.e., IShares Technology and Technology Select go up and down completely randomly.

Pair Corralation between IShares Technology and Technology Select

Considering the 90-day investment horizon iShares Technology ETF is expected to generate 1.05 times more return on investment than Technology Select. However, IShares Technology is 1.05 times more volatile than Technology Select Sector. It trades about -0.09 of its potential returns per unit of risk. Technology Select Sector is currently generating about -0.11 per unit of risk. If you would invest  13,260  in iShares Technology ETF on January 24, 2024 and sell it today you would lose (636.00) from holding iShares Technology ETF or give up 4.8% of portfolio value over 90 days.

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

iShares Technology ETF  vs.  Technology Select Sector

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.

Technology Select Sector

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Technology Select Sector has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, Technology Select is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with IShares Technology and Technology Select

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

The idea behind iShares Technology ETF and Technology Select Sector 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.