Correlation Between Goldman Sachs and IShares Financial

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

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

Diversification Opportunities for Goldman Sachs and IShares Financial

-0.66

Correlation Coefficient

Goldman Sachs  IShares Financial

Excellent diversification

The 3 months correlation between Goldman and IShares is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Goldman Sachs Future and iShares Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Financial and Goldman Sachs 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 Goldman Sachs Future are associated (or correlated) with IShares Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Financial has no effect on the direction of Goldman Sachs i.e., Goldman Sachs and IShares Financial go up and down completely randomly.

Pair Corralation between Goldman Sachs and IShares Financial

Given the investment horizon of 90 days Goldman Sachs Future is expected to under-perform the IShares Financial. But the etf apears to be less risky and, when comparing its historical volatility, Goldman Sachs Future is 1.82 times less risky than IShares Financial. The etf trades about -0.04 of its potential returns per unit of risk. The iShares Financial Services is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  6,982  in iShares Financial Services on August 24, 2024 and sell it today you would earn a total of  1,065  from holding iShares Financial Services or generate 15.25% return on investment over 90 days.

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

Goldman Sachs Future  vs.  iShares Financial Services

Goldman Sachs Future

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Goldman Sachs Future has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical and fundamental indicators, Goldman Sachs is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

iShares Financial

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Financial Services are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, IShares Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Goldman Sachs and IShares Financial

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

The idea behind Goldman Sachs Future and iShares Financial Services 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.