Correlation Between FlexShares IBoxx and IShares TIPS

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

By analyzing existing cross correlation between FlexShares iBoxx 5 Year and iShares TIPS Bond, you can compare the effects of market volatilities on FlexShares IBoxx and IShares TIPS 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 FlexShares IBoxx with a short position of IShares TIPS. Check out your portfolio center. Please also check ongoing floating volatility patterns of FlexShares IBoxx and IShares TIPS.

Diversification Opportunities for FlexShares IBoxx and IShares TIPS

1.0

Correlation Coefficient

FlexShares IBoxx  IShares TIPS

No risk reduction

The 3 months correlation between FlexShares and IShares is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding FlexShares iBoxx 5 Year and iShares TIPS Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares TIPS Bond and FlexShares IBoxx 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 FlexShares iBoxx 5 Year are associated (or correlated) with IShares TIPS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares TIPS Bond has no effect on the direction of FlexShares IBoxx i.e., FlexShares IBoxx and IShares TIPS go up and down completely randomly.

Pair Corralation between FlexShares IBoxx and IShares TIPS

Given the investment horizon of 90 days FlexShares iBoxx 5 Year is expected to under-perform the IShares TIPS. But the etf apears to be less risky and, when comparing its historical volatility, FlexShares iBoxx 5 Year is 1.11 times less risky than IShares TIPS. The etf trades about 0.0 of its potential returns per unit of risk. The iShares TIPS Bond is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  10,885  in iShares TIPS Bond on September 1, 2024 and sell it today you would lose (9.00) from holding iShares TIPS Bond or give up 0.08% of portfolio value over 90 days.

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

FlexShares iBoxx 5 Year  vs.  iShares TIPS Bond

FlexShares iBoxx 5

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FlexShares iBoxx 5 Year has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, FlexShares IBoxx is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

iShares TIPS Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares TIPS Bond has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward indicators, IShares TIPS is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with FlexShares IBoxx and IShares TIPS

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

The idea behind FlexShares iBoxx 5 Year and iShares TIPS 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.