Correlation Between IShares IBoxx and IShares Broad

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

Diversification Opportunities for IShares IBoxx and IShares Broad

0.81

Correlation Coefficient

IShares IBoxx  IShares Broad

Very poor diversification

The 3 months correlation between IShares and IShares is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding iShares iBoxx High and iShares Broad USD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Broad USD 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 Broad. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Broad USD has no effect on the direction of IShares IBoxx i.e., IShares IBoxx and IShares Broad go up and down completely randomly.

Pair Corralation between IShares IBoxx and IShares Broad

Considering the 90-day investment horizon IShares IBoxx is expected to generate 1.16 times less return on investment than IShares Broad. But when comparing it to its historical volatility, iShares iBoxx High is 1.17 times less risky than IShares Broad. It trades about 0.11 of its potential returns per unit of risk. iShares Broad USD is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  4,997  in iShares Broad USD on December 26, 2024 and sell it today you would earn a total of  97.00  from holding iShares Broad USD or generate 1.94% return on investment over 90 days.

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

iShares iBoxx High  vs.  iShares Broad USD

iShares iBoxx High

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares iBoxx High are ranked lower than 8 (%) 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 Broad USD

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Broad USD are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable forward indicators, IShares Broad is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with IShares IBoxx and IShares Broad

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

The idea behind iShares iBoxx High and iShares Broad USD 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..