Correlation Between IShares Agency and IShares International

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

Diversification Opportunities for IShares Agency and IShares International

0.84

Correlation Coefficient

IShares Agency  IShares International

Very poor diversification

The 3 months correlation between IShares and IShares is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding iShares Agency Bond and iShares International Treasury in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares International 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 International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares International has no effect on the direction of IShares Agency i.e., IShares Agency and IShares International go up and down completely randomly.

Pair Corralation between IShares Agency and IShares International

Considering the 90-day investment horizon IShares Agency is expected to generate 1.24 times less return on investment than IShares International. But when comparing it to its historical volatility, iShares Agency Bond is 2.94 times less risky than IShares International. It trades about 0.15 of its potential returns per unit of risk. iShares International Treasury is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  3,842  in iShares International Treasury on December 27, 2024 and sell it today you would earn a total of  81.00  from holding iShares International Treasury or generate 2.11% 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 International Treasury

iShares Agency Bond

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Agency Bond are ranked lower than 12 (%) 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 International

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares International Treasury are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, IShares International is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with IShares Agency and IShares International

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

The idea behind iShares Agency Bond and iShares International Treasury 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.