Correlation Between IShares Core and Deka IBoxx

Can any of the company-specific risk be diversified away by investing in both IShares Core and Deka 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 Core and Deka IBoxx 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 Deka iBoxx EUR, you can compare the effects of market volatilities on IShares Core and Deka 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 Core with a short position of Deka IBoxx. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Core and Deka IBoxx.

Diversification Opportunities for IShares Core and Deka IBoxx

0.74

Correlation Coefficient

IShares Core  Deka IBoxx

Poor diversification

The 3 months correlation between IShares and Deka is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core SP and Deka iBoxx EUR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deka iBoxx EUR 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 Deka IBoxx. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deka iBoxx EUR has no effect on the direction of IShares Core i.e., IShares Core and Deka IBoxx go up and down completely randomly.

Pair Corralation between IShares Core and Deka IBoxx

Assuming the 90 days trading horizon iShares Core SP is expected to generate 2.49 times more return on investment than Deka IBoxx. However, IShares Core is 2.49 times more volatile than Deka iBoxx EUR. It trades about 0.12 of its potential returns per unit of risk. Deka iBoxx EUR is currently generating about 0.07 per unit of risk. If you would invest  37,309  in iShares Core SP on September 19, 2024 and sell it today you would earn a total of  23,049  from holding iShares Core SP or generate 61.78% return on investment over 90 days.

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

iShares Core SP  vs.  Deka iBoxx EUR

iShares Core SP

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core SP are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, IShares Core may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Deka iBoxx EUR

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Deka iBoxx EUR are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Deka IBoxx 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 Core and Deka IBoxx

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

The idea behind iShares Core SP and Deka iBoxx EUR 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 Managers module to screen money managers from public funds and ETFs managed around the world.