Correlation Between IShares Agency and FlexShares Credit

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

Diversification Opportunities for IShares Agency and FlexShares Credit

0.86

Correlation Coefficient

IShares Agency  FlexShares Credit

Very poor diversification

The 3 months correlation between IShares and FlexShares is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding iShares Agency Bond and FlexShares Credit Scored Long in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares Credit 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 FlexShares Credit. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares Credit has no effect on the direction of IShares Agency i.e., IShares Agency and FlexShares Credit go up and down completely randomly.

Pair Corralation between IShares Agency and FlexShares Credit

Considering the 90-day investment horizon IShares Agency is expected to generate 1.52 times less return on investment than FlexShares Credit. But when comparing it to its historical volatility, iShares Agency Bond is 3.75 times less risky than FlexShares Credit. It trades about 0.09 of its potential returns per unit of risk. FlexShares Credit Scored Long is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  3,854  in FlexShares Credit Scored Long on October 4, 2024 and sell it today you would earn a total of  341.00  from holding FlexShares Credit Scored Long or generate 8.85% 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.  FlexShares Credit Scored Long

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.

FlexShares Credit

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FlexShares Credit Scored Long has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, FlexShares Credit is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with IShares Agency and FlexShares Credit

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

The idea behind iShares Agency Bond and FlexShares Credit Scored Long 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.