Correlation Between IShares TIPS and Xtrackers USD

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

Diversification Opportunities for IShares TIPS and Xtrackers USD

-0.12

Correlation Coefficient

IShares TIPS  Xtrackers USD

Good diversification

The 3 months correlation between IShares and Xtrackers is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding iShares TIPS Bond and Xtrackers USD High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers USD High 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 Xtrackers USD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers USD High has no effect on the direction of IShares TIPS i.e., IShares TIPS and Xtrackers USD go up and down completely randomly.

Pair Corralation between IShares TIPS and Xtrackers USD

Considering the 90-day investment horizon iShares TIPS Bond is expected to under-perform the Xtrackers USD. In addition to that, IShares TIPS is 1.29 times more volatile than Xtrackers USD High. It trades about -0.06 of its total potential returns per unit of risk. Xtrackers USD High is currently generating about 0.16 per unit of volatility. If you would invest  3,592  in Xtrackers USD High on September 12, 2024 and sell it today you would earn a total of  74.00  from holding Xtrackers USD High or generate 2.06% return on investment over 90 days.

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

iShares TIPS Bond  vs.  Xtrackers USD High

iShares TIPS Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares TIPS Bond has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Xtrackers USD High

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers USD High are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong essential indicators, Xtrackers USD 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 Xtrackers USD

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

The idea behind iShares TIPS Bond and Xtrackers USD High 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..