Correlation Between IShares Govt and Lyxor Treasury

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

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

Diversification Opportunities for IShares Govt and Lyxor Treasury

0.7

Correlation Coefficient

IShares Govt  Lyxor Treasury

Poor diversification

The 3 months correlation between IShares and Lyxor is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding iShares Govt Bond and Lyxor Treasury 10Y in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lyxor Treasury 10Y and IShares Govt 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 Govt Bond are associated (or correlated) with Lyxor Treasury. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lyxor Treasury 10Y has no effect on the direction of IShares Govt i.e., IShares Govt and Lyxor Treasury go up and down completely randomly.

Pair Corralation between IShares Govt and Lyxor Treasury

Assuming the 90 days trading horizon IShares Govt is expected to generate 1.78 times less return on investment than Lyxor Treasury. But when comparing it to its historical volatility, iShares Govt Bond is 2.4 times less risky than Lyxor Treasury. It trades about 0.1 of its potential returns per unit of risk. Lyxor Treasury 10Y is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  9,981  in Lyxor Treasury 10Y on December 30, 2024 and sell it today you would earn a total of  341.00  from holding Lyxor Treasury 10Y or generate 3.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	76.92%
Values	Daily Returns

iShares Govt Bond  vs.  Lyxor Treasury 10Y

iShares Govt Bond

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Govt Bond are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, IShares Govt is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Lyxor Treasury 10Y

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lyxor Treasury 10Y are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Lyxor Treasury 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 Govt and Lyxor Treasury

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

The idea behind iShares Govt Bond and Lyxor Treasury 10Y 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.