Correlation Between IShares Treasury and High Yield

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

By analyzing existing cross correlation between iShares Treasury Floating and High Yield Municipal Fund, you can compare the effects of market volatilities on IShares Treasury and High Yield 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 Treasury with a short position of High Yield. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Treasury and High Yield.

Diversification Opportunities for IShares Treasury and High Yield

-0.13

Correlation Coefficient

IShares Treasury  High Yield

Good diversification

The 3 months correlation between IShares and High is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding iShares Treasury Floating and High Yield Municipal Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on High Yield Municipal and IShares Treasury 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 Treasury Floating are associated (or correlated) with High Yield. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of High Yield Municipal has no effect on the direction of IShares Treasury i.e., IShares Treasury and High Yield go up and down completely randomly.

Pair Corralation between IShares Treasury and High Yield

Given the investment horizon of 90 days iShares Treasury Floating is expected to generate 0.06 times more return on investment than High Yield. However, iShares Treasury Floating is 18.16 times less risky than High Yield. It trades about 1.0 of its potential returns per unit of risk. High Yield Municipal Fund is currently generating about -0.06 per unit of risk. If you would invest  4,996  in iShares Treasury Floating on October 20, 2024 and sell it today you would earn a total of  63.00  from holding iShares Treasury Floating or generate 1.26% return on investment over 90 days.

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

iShares Treasury Floating  vs.  High Yield Municipal Fund

iShares Treasury Floating

Risk-Adjusted Performance

78 of 100

Market Crasher

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Treasury Floating are ranked lower than 78 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy essential indicators, IShares Treasury is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

High Yield Municipal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days High Yield Municipal Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, High Yield is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares Treasury and High Yield

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

The idea behind iShares Treasury Floating and High Yield Municipal Fund 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.