Correlation Between IShares Canadian and European Residential

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

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

Diversification Opportunities for IShares Canadian and European Residential

0.31

Correlation Coefficient

IShares Canadian  European Residential

Weak diversification

The 3 months correlation between IShares and European is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding iShares Canadian HYBrid and European Residential Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on European Residential Real and IShares Canadian 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 Canadian HYBrid are associated (or correlated) with European Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of European Residential Real has no effect on the direction of IShares Canadian i.e., IShares Canadian and European Residential go up and down completely randomly.

Pair Corralation between IShares Canadian and European Residential

Assuming the 90 days trading horizon iShares Canadian HYBrid is expected to generate 0.21 times more return on investment than European Residential. However, iShares Canadian HYBrid is 4.8 times less risky than European Residential. It trades about 0.15 of its potential returns per unit of risk. European Residential Real is currently generating about 0.01 per unit of risk. If you would invest  1,947  in iShares Canadian HYBrid on May 5, 2025 and sell it today you would earn a total of  42.00  from holding iShares Canadian HYBrid or generate 2.16% return on investment over 90 days.

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

iShares Canadian HYBrid  vs.  European Residential Real

iShares Canadian HYBrid

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Canadian HYBrid are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental drivers, IShares Canadian is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

European Residential Real

Risk-Adjusted Performance

Very Weak

Over the last 90 days European Residential Real has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, European Residential is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares Canadian and European Residential

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

The idea behind iShares Canadian HYBrid and European Residential Real 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.