Correlation Between Consumer Discretionary and IShares Transportation

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

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

Diversification Opportunities for Consumer Discretionary and IShares Transportation

0.74

Correlation Coefficient

Consumer Discretionary  IShares Transportation

Poor diversification

The 3 months correlation between Consumer and IShares is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Consumer Discretionary Select and iShares Transportation Average in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Transportation and Consumer Discretionary 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 Consumer Discretionary Select are associated (or correlated) with IShares Transportation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Transportation has no effect on the direction of Consumer Discretionary i.e., Consumer Discretionary and IShares Transportation go up and down completely randomly.

Pair Corralation between Consumer Discretionary and IShares Transportation

Considering the 90-day investment horizon Consumer Discretionary Select is expected to generate 0.85 times more return on investment than IShares Transportation. However, Consumer Discretionary Select is 1.18 times less risky than IShares Transportation. It trades about -0.07 of its potential returns per unit of risk. iShares Transportation Average is currently generating about -0.14 per unit of risk. If you would invest  17,791  in Consumer Discretionary Select on March 4, 2024 and sell it today you would lose (194.00) from holding Consumer Discretionary Select or give up 1.09% of portfolio value over 90 days.

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

Consumer Discretionary Select  vs.  iShares Transportation Average

Consumer Discretionary

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Consumer Discretionary Select has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong essential indicators, Consumer Discretionary is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

iShares Transportation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Transportation Average has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the exchange-traded fund private investors.

Pair Trading with Consumer Discretionary and IShares Transportation

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

The idea behind Consumer Discretionary Select and iShares Transportation Average 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.

Check out your portfolio center.

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.