Correlation Between IShares Consumer and Consumer Discretionary

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

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

Diversification Opportunities for IShares Consumer and Consumer Discretionary

0.69

Correlation Coefficient

IShares Consumer  Consumer Discretionary

Poor diversification

The 3 months correlation between IShares and Consumer is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding iShares Consumer Discretionary and Consumer Discretionary Select in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consumer Discretionary and IShares Consumer 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 Consumer Discretionary are associated (or correlated) with Consumer Discretionary. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consumer Discretionary has no effect on the direction of IShares Consumer i.e., IShares Consumer and Consumer Discretionary go up and down completely randomly.

Pair Corralation between IShares Consumer and Consumer Discretionary

Considering the 90-day investment horizon IShares Consumer is expected to generate 1.12 times less return on investment than Consumer Discretionary. But when comparing it to its historical volatility, iShares Consumer Discretionary is 1.27 times less risky than Consumer Discretionary. It trades about 0.16 of its potential returns per unit of risk. Consumer Discretionary Select is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  19,713  in Consumer Discretionary Select on May 6, 2025 and sell it today you would earn a total of  2,069  from holding Consumer Discretionary Select or generate 10.5% return on investment over 90 days.

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

iShares Consumer Discretionary  vs.  Consumer Discretionary Select

iShares Consumer Dis

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Consumer Discretionary are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting basic indicators, IShares Consumer may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Consumer Discretionary

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Consumer Discretionary Select are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak essential indicators, Consumer Discretionary may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with IShares Consumer and Consumer Discretionary

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

The idea behind iShares Consumer Discretionary and Consumer Discretionary Select 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.