Correlation Between IShares Treasury and Vanguard Mortgage

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

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

Diversification Opportunities for IShares Treasury and Vanguard Mortgage

0.97

Correlation Coefficient

IShares Treasury  Vanguard Mortgage

Almost no diversification

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

Pair Corralation between IShares Treasury and Vanguard Mortgage

Given the investment horizon of 90 days IShares Treasury is expected to generate 1.03 times less return on investment than Vanguard Mortgage. In addition to that, IShares Treasury is 1.53 times more volatile than Vanguard Mortgage Backed Securities. It trades about 0.09 of its total potential returns per unit of risk. Vanguard Mortgage Backed Securities is currently generating about 0.13 per unit of volatility. If you would invest  4,506  in Vanguard Mortgage Backed Securities on December 30, 2024 and sell it today you would earn a total of  122.00  from holding Vanguard Mortgage Backed Securities or generate 2.71% return on investment over 90 days.

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

iShares Treasury Bond  vs.  Vanguard Mortgage Backed Secur

iShares Treasury Bond

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Treasury Bond are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, IShares Treasury is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Vanguard Mortgage

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Mortgage Backed Securities are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental drivers, Vanguard Mortgage is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with IShares Treasury and Vanguard Mortgage

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

The idea behind iShares Treasury Bond and Vanguard Mortgage Backed Securities 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.