Correlation Between Select STOXX and IShares Technology

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

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

Diversification Opportunities for Select STOXX and IShares Technology

-0.67

Correlation Coefficient

Select STOXX  IShares Technology

Excellent diversification

The 3 months correlation between Select and IShares is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Select STOXX Europe and iShares Technology ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Technology ETF and Select STOXX 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 Select STOXX Europe are associated (or correlated) with IShares Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Technology ETF has no effect on the direction of Select STOXX i.e., Select STOXX and IShares Technology go up and down completely randomly.

Pair Corralation between Select STOXX and IShares Technology

Given the investment horizon of 90 days Select STOXX Europe is expected to generate 0.95 times more return on investment than IShares Technology. However, Select STOXX Europe is 1.05 times less risky than IShares Technology. It trades about 0.2 of its potential returns per unit of risk. iShares Technology ETF is currently generating about -0.08 per unit of risk. If you would invest  2,473  in Select STOXX Europe on January 15, 2025 and sell it today you would earn a total of  877.00  from holding Select STOXX Europe or generate 35.46% return on investment over 90 days.

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

Select STOXX Europe  vs.  iShares Technology ETF

Select STOXX Europe

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Select STOXX Europe are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting basic indicators, Select STOXX exhibited solid returns over the last few months and may actually be approaching a breakup point.

iShares Technology ETF

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Technology ETF has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Etf's basic indicators remain fairly stable which may send shares a bit higher in May 2025. The latest fuss may also be a sign of long-term up-swing for the fund sophisticated investors.

Pair Trading with Select STOXX and IShares Technology

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

The idea behind Select STOXX Europe and iShares Technology 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.