Correlation Between IShares National and IShares MBS

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

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

Diversification Opportunities for IShares National and IShares MBS

0.52

Correlation Coefficient

IShares National  IShares MBS

Very weak diversification

The 3 months correlation between IShares and IShares is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding iShares National Muni and iShares MBS ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MBS ETF and IShares National 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 National Muni are associated (or correlated) with IShares MBS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MBS ETF has no effect on the direction of IShares National i.e., IShares National and IShares MBS go up and down completely randomly.

Pair Corralation between IShares National and IShares MBS

Considering the 90-day investment horizon iShares National Muni is expected to under-perform the IShares MBS. But the etf apears to be less risky and, when comparing its historical volatility, iShares National Muni is 1.42 times less risky than IShares MBS. The etf trades about -0.09 of its potential returns per unit of risk. The iShares MBS ETF is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  9,111  in iShares MBS ETF on December 28, 2024 and sell it today you would earn a total of  191.00  from holding iShares MBS ETF or generate 2.1% return on investment over 90 days.

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

iShares National Muni  vs.  iShares MBS ETF

iShares National Muni

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares National Muni has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, IShares National is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 8 (%) 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.

Pair Trading with IShares National and IShares MBS

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

The idea behind iShares National Muni and iShares MBS ETF 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.