Correlation Between IShares TIPS and IShares JP

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

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

Diversification Opportunities for IShares TIPS and IShares JP

0.97

Correlation Coefficient

IShares TIPS  IShares JP

Almost no diversification

The 3 months correlation between IShares and IShares is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding iShares TIPS Bond and iShares JP Morgan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares JP Morgan and IShares TIPS 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 TIPS Bond are associated (or correlated) with IShares JP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares JP Morgan has no effect on the direction of IShares TIPS i.e., IShares TIPS and IShares JP go up and down completely randomly.

Pair Corralation between IShares TIPS and IShares JP

Considering the 90-day investment horizon iShares TIPS Bond is expected to generate 0.79 times more return on investment than IShares JP. However, iShares TIPS Bond is 1.27 times less risky than IShares JP. It trades about 0.19 of its potential returns per unit of risk. iShares JP Morgan is currently generating about 0.13 per unit of risk. If you would invest  10,664  in iShares TIPS Bond on December 25, 2024 and sell it today you would earn a total of  336.00  from holding iShares TIPS Bond or generate 3.15% return on investment over 90 days.

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

iShares TIPS Bond  vs.  iShares JP Morgan

iShares TIPS Bond

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares TIPS Bond are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. 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.

iShares JP Morgan

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares JP Morgan are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong primary indicators, IShares JP is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares TIPS and IShares JP

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

The idea behind iShares TIPS Bond and iShares JP Morgan 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..