Correlation Between IShares Agency and IShares Interest

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

Diversification Opportunities for IShares Agency and IShares Interest

0.47

Correlation Coefficient

IShares Agency  IShares Interest

Very weak diversification

The 3 months correlation between IShares and IShares is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding iShares Agency Bond and iShares Interest Rate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Interest Rate 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 Interest. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Interest Rate has no effect on the direction of IShares Agency i.e., IShares Agency and IShares Interest go up and down completely randomly.

Pair Corralation between IShares Agency and IShares Interest

Considering the 90-day investment horizon IShares Agency is expected to generate 3.08 times less return on investment than IShares Interest. But when comparing it to its historical volatility, iShares Agency Bond is 1.6 times less risky than IShares Interest. It trades about 0.07 of its potential returns per unit of risk. iShares Interest Rate is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  6,806  in iShares Interest Rate on December 4, 2024 and sell it today you would earn a total of  1,761  from holding iShares Interest Rate or generate 25.87% return on investment over 90 days.

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

iShares Agency Bond  vs.  iShares Interest Rate

iShares Agency Bond

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Agency Bond are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. 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 Interest Rate

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Interest Rate are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical and fundamental indicators, IShares Interest is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with IShares Agency and IShares Interest

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

The idea behind iShares Agency Bond and iShares Interest Rate 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.