Correlation Between IShares Core and IShares Treasury

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

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

Diversification Opportunities for IShares Core and IShares Treasury

0.96

Correlation Coefficient

IShares Core  IShares Treasury

Almost no diversification

The 3 months correlation between IShares and IShares is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core Total and iShares Treasury Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Treasury Bond and IShares Core 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 Core Total are associated (or correlated) with IShares Treasury. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Treasury Bond has no effect on the direction of IShares Core i.e., IShares Core and IShares Treasury go up and down completely randomly.

Pair Corralation between IShares Core and IShares Treasury

Given the investment horizon of 90 days IShares Core is expected to generate 1.13 times less return on investment than IShares Treasury. But when comparing it to its historical volatility, iShares Core Total is 1.81 times less risky than IShares Treasury. It trades about 0.14 of its potential returns per unit of risk. iShares Treasury Bond is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2,235  in iShares Treasury Bond on December 29, 2024 and sell it today you would earn a total of  58.00  from holding iShares Treasury Bond or generate 2.6% return on investment over 90 days.

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

iShares Core Total  vs.  iShares Treasury Bond

iShares Core Total

Risk-Adjusted Performance

OK

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

iShares Treasury Bond

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Treasury Bond are ranked lower than 6 (%) 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 current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with IShares Core and IShares Treasury

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

The idea behind iShares Core Total and iShares Treasury Bond 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.