Correlation Between Australian Bond and IShares Global

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

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

Diversification Opportunities for Australian Bond and IShares Global

-0.5

Correlation Coefficient

Australian Bond  IShares Global

Very good diversification

The 3 months correlation between Australian and IShares is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Australian Bond Exchange and iShares Global Healthcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Global Healthcare and Australian Bond 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 Australian Bond Exchange are associated (or correlated) with IShares Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Global Healthcare has no effect on the direction of Australian Bond i.e., Australian Bond and IShares Global go up and down completely randomly.

Pair Corralation between Australian Bond and IShares Global

Assuming the 90 days trading horizon Australian Bond Exchange is expected to generate 6.81 times more return on investment than IShares Global. However, Australian Bond is 6.81 times more volatile than iShares Global Healthcare. It trades about 0.01 of its potential returns per unit of risk. iShares Global Healthcare is currently generating about -0.03 per unit of risk. If you would invest  2.80  in Australian Bond Exchange on October 6, 2024 and sell it today you would lose (0.10) from holding Australian Bond Exchange or give up 3.57% of portfolio value over 90 days.

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

Australian Bond Exchange  vs.  iShares Global Healthcare

Australian Bond Exchange

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Australian Bond Exchange are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Australian Bond is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

iShares Global Healthcare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Global Healthcare has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable forward-looking indicators, IShares Global is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Australian Bond and IShares Global

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

The idea behind Australian Bond Exchange and iShares Global Healthcare 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.