Correlation Between IShares Consumer and IShares Utilities

Can any of the company-specific risk be diversified away by investing in both IShares Consumer 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 Consumer 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 Consumer Staples and iShares Utilities ETF, you can compare the effects of market volatilities on IShares Consumer 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 Consumer with a short position of IShares Utilities. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Consumer and IShares Utilities.

Diversification Opportunities for IShares Consumer and IShares Utilities

0.71

Correlation Coefficient

IShares Consumer  IShares Utilities

Poor diversification

The 3 months correlation between IShares and IShares is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding iShares Consumer Staples 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 Consumer 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 Consumer Staples 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 Consumer i.e., IShares Consumer and IShares Utilities go up and down completely randomly.

Pair Corralation between IShares Consumer and IShares Utilities

Considering the 90-day investment horizon IShares Consumer is expected to generate 1.75 times less return on investment than IShares Utilities. But when comparing it to its historical volatility, iShares Consumer Staples is 1.52 times less risky than IShares Utilities. It trades about 0.03 of its potential returns per unit of risk. iShares Utilities ETF is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  8,346  in iShares Utilities ETF on March 2, 2024 and sell it today you would earn a total of  753.00  from holding iShares Utilities ETF or generate 9.02% return on investment over 90 days.

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

iShares Consumer Staples  vs.  iShares Utilities ETF

iShares Consumer Staples

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Consumer Staples are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, IShares Consumer is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

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 Consumer and IShares Utilities

The main advantage of trading using opposite IShares Consumer and IShares Utilities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Consumer 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 Consumer Staples 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.