Correlation Between IShares High and IShares Convertible

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

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

Diversification Opportunities for IShares High and IShares Convertible

0.73

Correlation Coefficient

IShares High  IShares Convertible

Poor diversification

The 3 months correlation between IShares and IShares is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding iShares High Dividend and iShares Convertible Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Convertible Bond and IShares High 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 High Dividend are associated (or correlated) with IShares Convertible. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Convertible Bond has no effect on the direction of IShares High i.e., IShares High and IShares Convertible go up and down completely randomly.

Pair Corralation between IShares High and IShares Convertible

Assuming the 90 days trading horizon iShares High Dividend is expected to generate 0.87 times more return on investment than IShares Convertible. However, iShares High Dividend is 1.14 times less risky than IShares Convertible. It trades about 0.05 of its potential returns per unit of risk. iShares Convertible Bond is currently generating about 0.02 per unit of risk. If you would invest  2,613  in iShares High Dividend on January 29, 2024 and sell it today you would earn a total of  409.00  from holding iShares High Dividend or generate 15.65% return on investment over 90 days.

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

iShares High Dividend  vs.  iShares Convertible Bond

iShares High Dividend

Risk-Adjusted Performance

17 of 100

Solid

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

iShares Convertible Bond

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Convertible Bond are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, IShares Convertible is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with IShares High and IShares Convertible

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

The idea behind iShares High Dividend and iShares Convertible Bond 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.