Correlation Between VanEck Fallen and IShares IBoxx

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

By analyzing existing cross correlation between VanEck Fallen Angel and iShares iBoxx High, you can compare the effects of market volatilities on VanEck Fallen and IShares IBoxx 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 VanEck Fallen with a short position of IShares IBoxx. Check out your portfolio center. Please also check ongoing floating volatility patterns of VanEck Fallen and IShares IBoxx.

Diversification Opportunities for VanEck Fallen and IShares IBoxx

0.85

Correlation Coefficient

VanEck Fallen  IShares IBoxx

Very poor diversification

The 3 months correlation between VanEck and IShares is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding VanEck Fallen Angel and iShares iBoxx High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares iBoxx High and VanEck Fallen 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 VanEck Fallen Angel are associated (or correlated) with IShares IBoxx. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares iBoxx High has no effect on the direction of VanEck Fallen i.e., VanEck Fallen and IShares IBoxx go up and down completely randomly.

Pair Corralation between VanEck Fallen and IShares IBoxx

Given the investment horizon of 90 days VanEck Fallen Angel is expected to generate 1.0 times more return on investment than IShares IBoxx. However, VanEck Fallen is 1.0 times more volatile than iShares iBoxx High. It trades about 0.11 of its potential returns per unit of risk. iShares iBoxx High is currently generating about 0.07 per unit of risk. If you would invest  2,833  in VanEck Fallen Angel on December 29, 2024 and sell it today you would earn a total of  51.00  from holding VanEck Fallen Angel or generate 1.8% return on investment over 90 days.

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

VanEck Fallen Angel  vs.  iShares iBoxx High

VanEck Fallen Angel

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in VanEck Fallen Angel are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent technical and fundamental indicators, VanEck Fallen is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

iShares iBoxx High

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares iBoxx High are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, IShares IBoxx is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with VanEck Fallen and IShares IBoxx

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

The idea behind VanEck Fallen Angel and iShares iBoxx High 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.