Correlation Between IShares SP and Goldman Sachs

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

By analyzing existing cross correlation between iShares SP 500 and Goldman Sachs Hedge, you can compare the effects of market volatilities on IShares SP and Goldman Sachs 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 SP with a short position of Goldman Sachs. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares SP and Goldman Sachs.

Diversification Opportunities for IShares SP and Goldman Sachs

0.9

Correlation Coefficient

IShares SP  Goldman Sachs

Almost no diversification

The 3 months correlation between IShares and Goldman is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding iShares SP 500 and Goldman Sachs Hedge in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goldman Sachs Hedge and IShares SP 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 SP 500 are associated (or correlated) with Goldman Sachs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Goldman Sachs Hedge has no effect on the direction of IShares SP i.e., IShares SP and Goldman Sachs go up and down completely randomly.

Pair Corralation between IShares SP and Goldman Sachs

Considering the 90-day investment horizon iShares SP 500 is expected to generate 1.22 times more return on investment than Goldman Sachs. However, IShares SP is 1.22 times more volatile than Goldman Sachs Hedge. It trades about 0.03 of its potential returns per unit of risk. Goldman Sachs Hedge is currently generating about 0.04 per unit of risk. If you would invest  8,243  in iShares SP 500 on February 5, 2024 and sell it today you would earn a total of  94.00  from holding iShares SP 500 or generate 1.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	97.73%
Values	Daily Returns

iShares SP 500  vs.  Goldman Sachs Hedge

iShares SP 500

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SP 500 are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, IShares SP is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Goldman Sachs Hedge

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Goldman Sachs Hedge are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable forward indicators, Goldman Sachs is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with IShares SP and Goldman Sachs

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

The idea behind iShares SP 500 and Goldman Sachs Hedge 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.