Correlation Between IShares Regional and IShares Financials

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

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

Diversification Opportunities for IShares Regional and IShares Financials

0.97

Correlation Coefficient

IShares Regional  IShares Financials

Almost no diversification

The 3 months correlation between IShares and IShares is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding iShares Regional Banks and iShares Financials ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Financials ETF and IShares Regional 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 Regional Banks are associated (or correlated) with IShares Financials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Financials ETF has no effect on the direction of IShares Regional i.e., IShares Regional and IShares Financials go up and down completely randomly.

Pair Corralation between IShares Regional and IShares Financials

Considering the 90-day investment horizon iShares Regional Banks is expected to generate 1.65 times more return on investment than IShares Financials. However, IShares Regional is 1.65 times more volatile than iShares Financials ETF. It trades about 0.12 of its potential returns per unit of risk. iShares Financials ETF is currently generating about 0.15 per unit of risk. If you would invest  4,438  in iShares Regional Banks on May 6, 2025 and sell it today you would earn a total of  468.00  from holding iShares Regional Banks or generate 10.55% return on investment over 90 days.

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

iShares Regional Banks  vs.  iShares Financials ETF

iShares Regional Banks

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Regional Banks are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, IShares Regional may actually be approaching a critical reversion point that can send shares even higher in September 2025.

iShares Financials ETF

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Financials ETF are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, IShares Financials may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with IShares Regional and IShares Financials

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

The idea behind iShares Regional Banks and iShares Financials 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.