Correlation Between IShares MBS and Vanguard Intermediate

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

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

Diversification Opportunities for IShares MBS and Vanguard Intermediate

0.99

Correlation Coefficient

IShares MBS  Vanguard Intermediate

No risk reduction

The 3 months correlation between IShares and Vanguard is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding iShares MBS ETF and Vanguard Intermediate Term Tre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Intermediate and IShares MBS 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 MBS ETF are associated (or correlated) with Vanguard Intermediate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Intermediate has no effect on the direction of IShares MBS i.e., IShares MBS and Vanguard Intermediate go up and down completely randomly.

Pair Corralation between IShares MBS and Vanguard Intermediate

Considering the 90-day investment horizon IShares MBS is expected to generate 1.01 times less return on investment than Vanguard Intermediate. In addition to that, IShares MBS is 1.27 times more volatile than Vanguard Intermediate Term Treasury. It trades about 0.13 of its total potential returns per unit of risk. Vanguard Intermediate Term Treasury is currently generating about 0.17 per unit of volatility. If you would invest  5,766  in Vanguard Intermediate Term Treasury on December 30, 2024 and sell it today you would earn a total of  164.00  from holding Vanguard Intermediate Term Treasury or generate 2.84% return on investment over 90 days.

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

iShares MBS ETF  vs.  Vanguard Intermediate Term Tre

iShares MBS ETF

Risk-Adjusted Performance

OK

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

Vanguard Intermediate

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Intermediate Term Treasury are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable forward indicators, Vanguard Intermediate is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with IShares MBS and Vanguard Intermediate

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

The idea behind iShares MBS ETF and Vanguard Intermediate Term Treasury 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.