Correlation Between IShares Aaa and WisdomTree Corporate

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

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

Diversification Opportunities for IShares Aaa and WisdomTree Corporate

0.41

Correlation Coefficient

IShares Aaa  WisdomTree Corporate

Very weak diversification

The 3 months correlation between IShares and WisdomTree is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding iShares Aaa and WisdomTree Corporate Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Corporate Bond 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 WisdomTree Corporate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Corporate Bond has no effect on the direction of IShares Aaa i.e., IShares Aaa and WisdomTree Corporate go up and down completely randomly.

Pair Corralation between IShares Aaa and WisdomTree Corporate

Given the investment horizon of 90 days iShares Aaa is expected to generate 1.04 times more return on investment than WisdomTree Corporate. However, IShares Aaa is 1.04 times more volatile than WisdomTree Corporate Bond. It trades about 0.1 of its potential returns per unit of risk. WisdomTree Corporate Bond is currently generating about 0.09 per unit of risk. If you would invest  4,654  in iShares Aaa on December 29, 2024 and sell it today you would earn a total of  90.00  from holding iShares Aaa or generate 1.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	90.16%
Values	Daily Returns

iShares Aaa   vs.  WisdomTree Corporate Bond

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.

WisdomTree Corporate Bond

Risk-Adjusted Performance

Modest

Over the last 90 days WisdomTree Corporate Bond has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward indicators, WisdomTree Corporate is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with IShares Aaa and WisdomTree Corporate

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

The idea behind iShares Aaa and WisdomTree Corporate 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.