Correlation Between IShares GNMA and IShares Core

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

By analyzing existing cross correlation between iShares GNMA Bond and iShares Core 10, you can compare the effects of market volatilities on IShares GNMA and IShares Core 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 GNMA with a short position of IShares Core. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares GNMA and IShares Core.

Diversification Opportunities for IShares GNMA and IShares Core

0.97

Correlation Coefficient

IShares GNMA  IShares Core

Almost no diversification

The 3 months correlation between IShares and IShares is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding iShares GNMA Bond and iShares Core 10 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Core 10 and IShares GNMA 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 GNMA Bond are associated (or correlated) with IShares Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Core 10 has no effect on the direction of IShares GNMA i.e., IShares GNMA and IShares Core go up and down completely randomly.

Pair Corralation between IShares GNMA and IShares Core

Given the investment horizon of 90 days iShares GNMA Bond is expected to generate 0.58 times more return on investment than IShares Core. However, iShares GNMA Bond is 1.74 times less risky than IShares Core. It trades about 0.13 of its potential returns per unit of risk. iShares Core 10 is currently generating about 0.07 per unit of risk. If you would invest  4,264  in iShares GNMA Bond on December 29, 2024 and sell it today you would earn a total of  119.00  from holding iShares GNMA Bond or generate 2.79% return on investment over 90 days.

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

iShares GNMA Bond  vs.  iShares Core 10

iShares GNMA Bond

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares GNMA Bond are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong primary indicators, IShares GNMA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

iShares Core 10

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core 10 are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, IShares Core is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares GNMA and IShares Core

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

The idea behind iShares GNMA Bond and iShares Core 10 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 Transaction History module to view history of all your transactions and understand their impact on performance.