Correlation Between FlexShares IBoxx and FlexShares Morningstar

Can any of the company-specific risk be diversified away by investing in both FlexShares IBoxx and FlexShares Morningstar 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 FlexShares Morningstar 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 FlexShares Morningstar Developed, you can compare the effects of market volatilities on FlexShares IBoxx and FlexShares Morningstar 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 FlexShares Morningstar. Check out your portfolio center. Please also check ongoing floating volatility patterns of FlexShares IBoxx and FlexShares Morningstar.

Diversification Opportunities for FlexShares IBoxx and FlexShares Morningstar

0.83

Correlation Coefficient

FlexShares IBoxx  FlexShares Morningstar

Very poor diversification

The 3 months correlation between FlexShares and FlexShares is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding FlexShares iBoxx 3 Year and FlexShares Morningstar Develop in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares Morningstar 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 FlexShares Morningstar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares Morningstar has no effect on the direction of FlexShares IBoxx i.e., FlexShares IBoxx and FlexShares Morningstar go up and down completely randomly.

Pair Corralation between FlexShares IBoxx and FlexShares Morningstar

Given the investment horizon of 90 days FlexShares iBoxx 3 Year is expected to generate 0.2 times more return on investment than FlexShares Morningstar. However, FlexShares iBoxx 3 Year is 5.11 times less risky than FlexShares Morningstar. It trades about -0.03 of its potential returns per unit of risk. FlexShares Morningstar Developed is currently generating about -0.03 per unit of risk. If you would invest  2,386  in FlexShares iBoxx 3 Year on September 14, 2024 and sell it today you would lose (7.00) from holding FlexShares iBoxx 3 Year or give up 0.29% of portfolio value over 90 days.

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

FlexShares iBoxx 3 Year  vs.  FlexShares Morningstar Develop

FlexShares iBoxx 3

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FlexShares iBoxx 3 Year has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

FlexShares Morningstar

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FlexShares Morningstar Developed has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, FlexShares Morningstar is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with FlexShares IBoxx and FlexShares Morningstar

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

The idea behind FlexShares iBoxx 3 Year and FlexShares Morningstar Developed 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.