Correlation Between IShares 5 and IShares Inflation

Can any of the company-specific risk be diversified away by investing in both IShares 5 and IShares Inflation 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 5 and IShares Inflation into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between iShares 5 10 Year and iShares Inflation Hedged, you can compare the effects of market volatilities on IShares 5 and IShares Inflation 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 5 with a short position of IShares Inflation. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares 5 and IShares Inflation.

Diversification Opportunities for IShares 5 and IShares Inflation

0.92

Correlation Coefficient

IShares 5  IShares Inflation

Almost no diversification

The 3 months correlation between IShares and IShares is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding iShares 5 10 Year and iShares Inflation Hedged in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Inflation Hedged and IShares 5 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 5 10 Year are associated (or correlated) with IShares Inflation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Inflation Hedged has no effect on the direction of IShares 5 i.e., IShares 5 and IShares Inflation go up and down completely randomly.

Pair Corralation between IShares 5 and IShares Inflation

Given the investment horizon of 90 days iShares 5 10 Year is expected to generate 0.73 times more return on investment than IShares Inflation. However, iShares 5 10 Year is 1.37 times less risky than IShares Inflation. It trades about 0.13 of its potential returns per unit of risk. iShares Inflation Hedged is currently generating about 0.09 per unit of risk. If you would invest  5,122  in iShares 5 10 Year on December 29, 2024 and sell it today you would earn a total of  122.00  from holding iShares 5 10 Year or generate 2.38% return on investment over 90 days.

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

iShares 5 10 Year  vs.  iShares Inflation Hedged

iShares 5 10

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares 5 10 Year are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong forward indicators, IShares 5 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

iShares Inflation Hedged

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Inflation Hedged are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong fundamental indicators, IShares Inflation is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with IShares 5 and IShares Inflation

The main advantage of trading using opposite IShares 5 and IShares Inflation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares 5 position performs unexpectedly, IShares Inflation 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 Inflation will offset losses from the drop in IShares Inflation's long position.

The idea behind iShares 5 10 Year and iShares Inflation Hedged 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.