Correlation Between IShares Treasury and Eurocastle Investment

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

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

Diversification Opportunities for IShares Treasury and Eurocastle Investment

-0.48

Correlation Coefficient

IShares Treasury  Eurocastle Investment

Very good diversification

The 3 months correlation between IShares and Eurocastle is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding iShares Treasury Bond and Eurocastle Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eurocastle Investment and IShares Treasury 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 Treasury Bond are associated (or correlated) with Eurocastle Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eurocastle Investment has no effect on the direction of IShares Treasury i.e., IShares Treasury and Eurocastle Investment go up and down completely randomly.

Pair Corralation between IShares Treasury and Eurocastle Investment

Assuming the 90 days trading horizon IShares Treasury is expected to generate 44.1 times less return on investment than Eurocastle Investment. But when comparing it to its historical volatility, iShares Treasury Bond is 29.57 times less risky than Eurocastle Investment. It trades about 0.11 of its potential returns per unit of risk. Eurocastle Investment is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  600.00  in Eurocastle Investment on September 16, 2024 and sell it today you would earn a total of  140.00  from holding Eurocastle Investment or generate 23.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	68.18%
Values	Daily Returns

iShares Treasury Bond  vs.  Eurocastle Investment

iShares Treasury Bond

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Treasury Bond are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, IShares Treasury is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Eurocastle Investment

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Eurocastle Investment are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Eurocastle Investment unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares Treasury and Eurocastle Investment

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

The idea behind iShares Treasury Bond and Eurocastle Investment 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.