Correlation Between IShares IBonds and IShares IBoxx

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

By analyzing existing cross correlation between iShares iBonds 2027 and iShares iBoxx High, you can compare the effects of market volatilities on IShares IBonds and IShares IBoxx 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 IBonds with a short position of IShares IBoxx. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares IBonds and IShares IBoxx.

Diversification Opportunities for IShares IBonds and IShares IBoxx

0.87

Correlation Coefficient

IShares IBonds  IShares IBoxx

Very poor diversification

The 3 months correlation between IShares and IShares is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding iShares iBonds 2027 and iShares iBoxx High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares iBoxx High and IShares IBonds 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 iBonds 2027 are associated (or correlated) with IShares IBoxx. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares iBoxx High has no effect on the direction of IShares IBonds i.e., IShares IBonds and IShares IBoxx go up and down completely randomly.

Pair Corralation between IShares IBonds and IShares IBoxx

Given the investment horizon of 90 days IShares IBonds is expected to generate 1.09 times less return on investment than IShares IBoxx. But when comparing it to its historical volatility, iShares iBonds 2027 is 1.09 times less risky than IShares IBoxx. It trades about 0.1 of its potential returns per unit of risk. iShares iBoxx High is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  6,511  in iShares iBoxx High on September 23, 2024 and sell it today you would earn a total of  1,347  from holding iShares iBoxx High or generate 20.69% return on investment over 90 days.

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

iShares iBonds 2027  vs.  iShares iBoxx High

iShares iBonds 2027

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares iBonds 2027 are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical indicators, IShares IBonds is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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.

Pair Trading with IShares IBonds and IShares IBoxx

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

The idea behind iShares iBonds 2027 and iShares iBoxx High 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.