Correlation Between IShares Aerospace and US Global

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

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

Diversification Opportunities for IShares Aerospace and US Global

0.42

Correlation Coefficient

IShares Aerospace  US Global

Very weak diversification

The 3 months correlation between IShares and SEA is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding iShares Aerospace Defense and US Global Sea in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Global Sea and IShares Aerospace 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 Aerospace Defense are associated (or correlated) with US Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Global Sea has no effect on the direction of IShares Aerospace i.e., IShares Aerospace and US Global go up and down completely randomly.

Pair Corralation between IShares Aerospace and US Global

Considering the 90-day investment horizon IShares Aerospace is expected to generate 1.93 times less return on investment than US Global. But when comparing it to its historical volatility, iShares Aerospace Defense is 1.36 times less risky than US Global. It trades about 0.17 of its potential returns per unit of risk. US Global Sea is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  1,511  in US Global Sea on February 8, 2024 and sell it today you would earn a total of  135.00  from holding US Global Sea or generate 8.93% return on investment over 90 days.

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

iShares Aerospace Defense  vs.  US Global Sea

iShares Aerospace Defense

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Aerospace Defense are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent basic indicators, IShares Aerospace may actually be approaching a critical reversion point that can send shares even higher in June 2024.

US Global Sea

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in US Global Sea are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent technical and fundamental indicators, US Global may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with IShares Aerospace and US Global

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

The idea behind iShares Aerospace Defense and US Global Sea 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.