Correlation Between IShares Industrials and IShares Utilities

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

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

Diversification Opportunities for IShares Industrials and IShares Utilities

0.35

Correlation Coefficient

IShares Industrials  IShares Utilities

Weak diversification

The 3 months correlation between IShares and IShares is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding iShares Industrials ETF and iShares Utilities ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Utilities ETF and IShares Industrials 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 Industrials ETF are associated (or correlated) with IShares Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Utilities ETF has no effect on the direction of IShares Industrials i.e., IShares Industrials and IShares Utilities go up and down completely randomly.

Pair Corralation between IShares Industrials and IShares Utilities

Considering the 90-day investment horizon IShares Industrials is expected to generate 5.39 times less return on investment than IShares Utilities. But when comparing it to its historical volatility, iShares Industrials ETF is 1.24 times less risky than IShares Utilities. It trades about 0.07 of its potential returns per unit of risk. iShares Utilities ETF is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  8,645  in iShares Utilities ETF on March 2, 2024 and sell it today you would earn a total of  454.00  from holding iShares Utilities ETF or generate 5.25% return on investment over 90 days.

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

iShares Industrials ETF  vs.  iShares Utilities ETF

iShares Industrials ETF

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Industrials ETF has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady basic indicators, IShares Industrials is not utilizing all of its potentials. The current stock price chaos, may contribute to medium-term losses for the stakeholders.

iShares Utilities ETF

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Utilities ETF are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting fundamental indicators, IShares Utilities may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Pair Trading with IShares Industrials and IShares Utilities

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

The idea behind iShares Industrials ETF and iShares Utilities 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.