Correlation Between IShares Core and SOFR

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

By analyzing existing cross correlation between iShares Core SP and SOFR, you can compare the effects of market volatilities on IShares Core and SOFR 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 SOFR. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Core and SOFR.

Diversification Opportunities for IShares Core and SOFR

0.87

Correlation Coefficient

IShares Core  SOFR

Very poor diversification

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

Pair Corralation between IShares Core and SOFR

Considering the 90-day investment horizon iShares Core SP is expected to generate 28.27 times more return on investment than SOFR. However, IShares Core is 28.27 times more volatile than SOFR. It trades about 0.12 of its potential returns per unit of risk. SOFR is currently generating about 0.72 per unit of risk. If you would invest  37,143  in iShares Core SP on September 22, 2024 and sell it today you would earn a total of  22,190  from holding iShares Core SP or generate 59.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	55.85%
Values	Daily Returns

iShares Core SP  vs.  SOFR

iShares Core SP

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core SP are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, IShares Core is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

SOFR

Risk-Adjusted Performance

38 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in SOFR are ranked lower than 38 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, SOFR is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with IShares Core and SOFR

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

The idea behind iShares Core SP and SOFR 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.