Correlation Between IShares Aerospace and IShares Expanded

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Can any of the company-specific risk be diversified away by investing in both IShares Aerospace and IShares Expanded 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 Aerospace and IShares Expanded into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares Aerospace Defense and iShares Expanded Tech Software, you can compare the effects of market volatilities on IShares Aerospace and IShares Expanded 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 Aerospace with a short position of IShares Expanded. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Aerospace and IShares Expanded.

Diversification Opportunities for IShares Aerospace and IShares Expanded

0.95
  Correlation Coefficient

Almost no diversification

The 3 months correlation between IShares and IShares is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding iShares Aerospace Defense and iShares Expanded Tech Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Expanded Tech and IShares Aerospace 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 Aerospace Defense are associated (or correlated) with IShares Expanded. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Expanded Tech has no effect on the direction of IShares Aerospace i.e., IShares Aerospace and IShares Expanded go up and down completely randomly.

Pair Corralation between IShares Aerospace and IShares Expanded

Considering the 90-day investment horizon iShares Aerospace Defense is expected to generate 0.85 times more return on investment than IShares Expanded. However, iShares Aerospace Defense is 1.17 times less risky than IShares Expanded. It trades about 0.37 of its potential returns per unit of risk. iShares Expanded Tech Software is currently generating about 0.18 per unit of risk. If you would invest  16,016  in iShares Aerospace Defense on May 7, 2025 and sell it today you would earn a total of  3,775  from holding iShares Aerospace Defense or generate 23.57% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

iShares Aerospace Defense  vs.  iShares Expanded Tech Software

 Performance 
       Timeline  
iShares Aerospace Defense 

Risk-Adjusted Performance

Strong

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in iShares Aerospace Defense are ranked lower than 29 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, IShares Aerospace sustained solid returns over the last few months and may actually be approaching a breakup point.
iShares Expanded Tech 

Risk-Adjusted Performance

Good

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in iShares Expanded Tech Software are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal technical and fundamental indicators, IShares Expanded may actually be approaching a critical reversion point that can send shares even higher in September 2025.

IShares Aerospace and IShares Expanded Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with IShares Aerospace and IShares Expanded

The main advantage of trading using opposite IShares Aerospace and IShares Expanded positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Aerospace position performs unexpectedly, IShares Expanded 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 Expanded will offset losses from the drop in IShares Expanded's long position.
The idea behind iShares Aerospace Defense and iShares Expanded Tech Software 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.

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