Correlation Between IShares Govt and IShares Global

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

By analyzing existing cross correlation between iShares Govt Bond and iShares Global AAA AA, you can compare the effects of market volatilities on IShares Govt and IShares Global 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 Govt with a short position of IShares Global. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Govt and IShares Global.

Diversification Opportunities for IShares Govt and IShares Global

0.96

Correlation Coefficient

IShares Govt  IShares Global

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 Govt Bond and iShares Global AAA AA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Global AAA and IShares Govt 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 Govt Bond are associated (or correlated) with IShares Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Global AAA has no effect on the direction of IShares Govt i.e., IShares Govt and IShares Global go up and down completely randomly.

Pair Corralation between IShares Govt and IShares Global

Assuming the 90 days trading horizon iShares Govt Bond is expected to under-perform the IShares Global. In addition to that, IShares Govt is 1.36 times more volatile than iShares Global AAA AA. It trades about -0.03 of its total potential returns per unit of risk. iShares Global AAA AA is currently generating about -0.02 per unit of volatility. If you would invest  7,184  in iShares Global AAA AA on October 22, 2024 and sell it today you would lose (28.00) from holding iShares Global AAA AA or give up 0.39% of portfolio value over 90 days.

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

iShares Govt Bond  vs.  iShares Global AAA AA

iShares Govt Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Govt Bond has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, IShares Govt is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

iShares Global AAA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Global AAA AA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, IShares Global is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with IShares Govt and IShares Global

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

The idea behind iShares Govt Bond and iShares Global AAA AA 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.