Correlation Between IShares Trust and ARCA Computer

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

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

Diversification Opportunities for IShares Trust and ARCA Computer

0.96

Correlation Coefficient

IShares Trust  ARCA Computer

Almost no diversification

The 3 months correlation between IShares and ARCA is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding iShares Trust and ARCA Computer Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ARCA Computer Technology and IShares Trust 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 Trust are associated (or correlated) with ARCA Computer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ARCA Computer Technology has no effect on the direction of IShares Trust i.e., IShares Trust and ARCA Computer go up and down completely randomly.

Pair Corralation between IShares Trust and ARCA Computer

Given the investment horizon of 90 days IShares Trust is expected to generate 7.7 times less return on investment than ARCA Computer. But when comparing it to its historical volatility, iShares Trust is 7.0 times less risky than ARCA Computer. It trades about 0.31 of its potential returns per unit of risk. ARCA Computer Technology is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest  1,097,419  in ARCA Computer Technology on May 4, 2025 and sell it today you would earn a total of  273,767  from holding ARCA Computer Technology or generate 24.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.41%
Values	Daily Returns

iShares Trust   vs.  ARCA Computer Technology

Pair Trading with IShares Trust and ARCA Computer

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

The idea behind iShares Trust and ARCA Computer Technology 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.