Correlation Between IShares Agency and IShares CMBS

Can any of the company-specific risk be diversified away by investing in both IShares Agency and IShares CMBS 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 CMBS 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 CMBS ETF, you can compare the effects of market volatilities on IShares Agency and IShares CMBS 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 CMBS. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Agency and IShares CMBS.

Diversification Opportunities for IShares Agency and IShares CMBS

0.96

Correlation Coefficient

IShares Agency  IShares CMBS

Almost no diversification

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

Pair Corralation between IShares Agency and IShares CMBS

Considering the 90-day investment horizon iShares Agency Bond is expected to generate 0.51 times more return on investment than IShares CMBS. However, iShares Agency Bond is 1.97 times less risky than IShares CMBS. It trades about -0.1 of its potential returns per unit of risk. iShares CMBS ETF is currently generating about -0.06 per unit of risk. If you would invest  10,981  in iShares Agency Bond on September 14, 2024 and sell it today you would lose (117.00) from holding iShares Agency Bond or give up 1.07% of portfolio value over 90 days.

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

iShares Agency Bond  vs.  iShares CMBS ETF

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 newest stock price disturbance, may contribute to short-term losses for the investors.

iShares CMBS ETF

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with IShares Agency and IShares CMBS

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

The idea behind iShares Agency Bond and iShares CMBS ETF 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.