Correlation Between FlexShares IBoxx and Vanguard Short

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

Diversification Opportunities for FlexShares IBoxx and Vanguard Short

0.99

Correlation Coefficient

FlexShares IBoxx  Vanguard Short

No risk reduction

The 3 months correlation between FlexShares and Vanguard is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding FlexShares iBoxx 3 Year and Vanguard Short Term Inflation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Short Term 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 Vanguard Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Short Term has no effect on the direction of FlexShares IBoxx i.e., FlexShares IBoxx and Vanguard Short go up and down completely randomly.

Pair Corralation between FlexShares IBoxx and Vanguard Short

Given the investment horizon of 90 days FlexShares iBoxx 3 Year is expected to generate 1.48 times more return on investment than Vanguard Short. However, FlexShares IBoxx is 1.48 times more volatile than Vanguard Short Term Inflation Protected. It trades about 0.16 of its potential returns per unit of risk. Vanguard Short Term Inflation Protected is currently generating about 0.24 per unit of risk. If you would invest  2,273  in FlexShares iBoxx 3 Year on December 5, 2024 and sell it today you would earn a total of  145.00  from holding FlexShares iBoxx 3 Year or generate 6.38% return on investment over 90 days.

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

FlexShares iBoxx 3 Year  vs.  Vanguard Short Term Inflation

FlexShares iBoxx 3

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in FlexShares iBoxx 3 Year are ranked lower than 19 (%) 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.

Vanguard Short Term

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Short Term Inflation Protected are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable forward indicators, Vanguard Short is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with FlexShares IBoxx and Vanguard Short

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

The idea behind FlexShares iBoxx 3 Year and Vanguard Short Term Inflation Protected 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..