Correlation Between IShares Aaa and IShares IBoxx

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

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

Diversification Opportunities for IShares Aaa and IShares IBoxx

1.0

Correlation Coefficient

IShares Aaa  IShares IBoxx

No risk reduction

The 3 months correlation between IShares and IShares is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding iShares Aaa and iShares iBoxx Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares iBoxx Investment and IShares Aaa 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 Aaa are associated (or correlated) with IShares IBoxx. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares iBoxx Investment has no effect on the direction of IShares Aaa i.e., IShares Aaa and IShares IBoxx go up and down completely randomly.

Pair Corralation between IShares Aaa and IShares IBoxx

Given the investment horizon of 90 days IShares Aaa is expected to generate 1.06 times less return on investment than IShares IBoxx. But when comparing it to its historical volatility, iShares Aaa is 1.22 times less risky than IShares IBoxx. It trades about 0.1 of its potential returns per unit of risk. iShares iBoxx Investment is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  10,632  in iShares iBoxx Investment on December 29, 2024 and sell it today you would earn a total of  216.00  from holding iShares iBoxx Investment or generate 2.03% return on investment over 90 days.

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

iShares Aaa   vs.  iShares iBoxx Investment

iShares Aaa

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Aaa are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, IShares Aaa is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

iShares iBoxx Investment

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares iBoxx Investment are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, IShares IBoxx is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with IShares Aaa and IShares IBoxx

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

The idea behind iShares Aaa and iShares iBoxx Investment 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.