Correlation Between IShares IBoxx and IShares Fallen

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

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

Diversification Opportunities for IShares IBoxx and IShares Fallen

0.97

Correlation Coefficient

IShares IBoxx  IShares Fallen

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

Pair Corralation between IShares IBoxx and IShares Fallen

Considering the 90-day investment horizon IShares IBoxx is expected to generate 1.29 times less return on investment than IShares Fallen. But when comparing it to its historical volatility, iShares iBoxx High is 1.21 times less risky than IShares Fallen. It trades about 0.14 of its potential returns per unit of risk. iShares Fallen Angels is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  2,691  in iShares Fallen Angels on September 17, 2024 and sell it today you would earn a total of  18.00  from holding iShares Fallen Angels or generate 0.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.24%
Values	Daily Returns

iShares iBoxx High  vs.  iShares Fallen Angels

iShares iBoxx High

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares iBoxx High are ranked lower than 6 (%) 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.

iShares Fallen Angels

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Fallen Angels are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy essential indicators, IShares Fallen is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with IShares IBoxx and IShares Fallen

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

The idea behind iShares iBoxx High and iShares Fallen Angels 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.