Correlation Between IShares Agency and IShares Yield

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

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

Diversification Opportunities for IShares Agency and IShares Yield

0.8

Correlation Coefficient

IShares Agency  IShares Yield

Very poor diversification

The 3 months correlation between IShares and IShares is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding iShares Agency Bond and iShares Yield Optimized in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Yield Optimized and IShares Agency 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 Agency Bond are associated (or correlated) with IShares Yield. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Yield Optimized has no effect on the direction of IShares Agency i.e., IShares Agency and IShares Yield go up and down completely randomly.

Pair Corralation between IShares Agency and IShares Yield

Considering the 90-day investment horizon IShares Agency is expected to generate 1.55 times less return on investment than IShares Yield. But when comparing it to its historical volatility, iShares Agency Bond is 1.45 times less risky than IShares Yield. It trades about 0.09 of its potential returns per unit of risk. iShares Yield Optimized is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2,125  in iShares Yield Optimized on September 13, 2024 and sell it today you would earn a total of  134.00  from holding iShares Yield Optimized or generate 6.31% return on investment over 90 days.

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

iShares Agency Bond  vs.  iShares Yield Optimized

iShares Agency Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Agency Bond has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, IShares Agency is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

iShares Yield Optimized

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Yield Optimized are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, IShares Yield is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with IShares Agency and IShares Yield

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

The idea behind iShares Agency Bond and iShares Yield Optimized 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.