Correlation Between IShares IBoxx and Xtrackers Low

Can any of the company-specific risk be diversified away by investing in both IShares IBoxx and Xtrackers Low 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 Xtrackers Low 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 Xtrackers Low Beta, you can compare the effects of market volatilities on IShares IBoxx and Xtrackers Low 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 Xtrackers Low. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares IBoxx and Xtrackers Low.

Diversification Opportunities for IShares IBoxx and Xtrackers Low

0.77

Correlation Coefficient

IShares IBoxx  Xtrackers Low

Poor diversification

The 3 months correlation between IShares and Xtrackers is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding iShares iBoxx High and Xtrackers Low Beta in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers Low Beta 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 Xtrackers Low. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers Low Beta has no effect on the direction of IShares IBoxx i.e., IShares IBoxx and Xtrackers Low go up and down completely randomly.

Pair Corralation between IShares IBoxx and Xtrackers Low

Considering the 90-day investment horizon iShares iBoxx High is expected to under-perform the Xtrackers Low. In addition to that, IShares IBoxx is 1.29 times more volatile than Xtrackers Low Beta. It trades about -0.08 of its total potential returns per unit of risk. Xtrackers Low Beta is currently generating about -0.08 per unit of volatility. If you would invest  4,632  in Xtrackers Low Beta on October 14, 2024 and sell it today you would lose (21.00) from holding Xtrackers Low Beta or give up 0.45% of portfolio value over 90 days.

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

iShares iBoxx High  vs.  Xtrackers Low Beta

iShares iBoxx High

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares iBoxx High has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Xtrackers Low Beta

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Xtrackers Low Beta has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable fundamental indicators, Xtrackers Low is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with IShares IBoxx and Xtrackers Low

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

The idea behind iShares iBoxx High and Xtrackers Low Beta 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.