Correlation Between FlexShares IBoxx and SPDR Bloomberg

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

By analyzing existing cross correlation between FlexShares iBoxx 3 Year and SPDR Bloomberg 1 10, you can compare the effects of market volatilities on FlexShares IBoxx and SPDR Bloomberg 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 SPDR Bloomberg. Check out your portfolio center. Please also check ongoing floating volatility patterns of FlexShares IBoxx and SPDR Bloomberg.

Diversification Opportunities for FlexShares IBoxx and SPDR Bloomberg

0.89

Correlation Coefficient

FlexShares IBoxx  SPDR Bloomberg

Very poor diversification

The 3 months correlation between FlexShares and SPDR is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding FlexShares iBoxx 3 Year and SPDR Bloomberg 1 10 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Bloomberg 1 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 3 Year are associated (or correlated) with SPDR Bloomberg. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Bloomberg 1 has no effect on the direction of FlexShares IBoxx i.e., FlexShares IBoxx and SPDR Bloomberg go up and down completely randomly.

Pair Corralation between FlexShares IBoxx and SPDR Bloomberg

Given the investment horizon of 90 days FlexShares IBoxx is expected to generate 1.08 times less return on investment than SPDR Bloomberg. But when comparing it to its historical volatility, FlexShares iBoxx 3 Year is 1.24 times less risky than SPDR Bloomberg. It trades about 0.35 of its potential returns per unit of risk. SPDR Bloomberg 1 10 is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  1,847  in SPDR Bloomberg 1 10 on December 29, 2024 and sell it today you would earn a total of  68.00  from holding SPDR Bloomberg 1 10 or generate 3.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.39%
Values	Daily Returns

FlexShares iBoxx 3 Year  vs.  SPDR Bloomberg 1 10

FlexShares iBoxx 3

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in FlexShares iBoxx 3 Year are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, FlexShares IBoxx is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

SPDR Bloomberg 1

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Bloomberg 1 10 are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, SPDR Bloomberg is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with FlexShares IBoxx and SPDR Bloomberg

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

The idea behind FlexShares iBoxx 3 Year and SPDR Bloomberg 1 10 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.