Correlation Between IShares Core and Simplify Volatility

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

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

Diversification Opportunities for IShares Core and Simplify Volatility

0.95

Correlation Coefficient

IShares Core  Simplify Volatility

Almost no diversification

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

Pair Corralation between IShares Core and Simplify Volatility

Considering the 90-day investment horizon IShares Core is expected to generate 2.49 times less return on investment than Simplify Volatility. But when comparing it to its historical volatility, iShares Core SP is 2.97 times less risky than Simplify Volatility. It trades about 0.3 of its potential returns per unit of risk. Simplify Volatility Premium is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  1,591  in Simplify Volatility Premium on February 13, 2025 and sell it today you would earn a total of  356.00  from holding Simplify Volatility Premium or generate 22.38% return on investment over 90 days.

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

iShares Core SP  vs.  Simplify Volatility Premium

iShares Core SP

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Core SP has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, IShares Core is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Simplify Volatility

Risk-Adjusted Performance

Very Weak

Over the last 90 days Simplify Volatility Premium has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Simplify Volatility is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with IShares Core and Simplify Volatility

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

The idea behind iShares Core SP and Simplify Volatility Premium 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.