Correlation Between IShares TIPS and FlexShares IBoxx

Can any of the company-specific risk be diversified away by investing in both IShares TIPS and FlexShares IBoxx 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 FlexShares IBoxx 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 FlexShares iBoxx 5 Year, you can compare the effects of market volatilities on IShares TIPS and FlexShares IBoxx 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 FlexShares IBoxx. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares TIPS and FlexShares IBoxx.

Diversification Opportunities for IShares TIPS and FlexShares IBoxx

1.0

Correlation Coefficient

IShares TIPS  FlexShares IBoxx

No risk reduction

The 3 months correlation between IShares and FlexShares is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding iShares TIPS Bond and FlexShares iBoxx 5 Year in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares iBoxx 5 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 FlexShares IBoxx. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares iBoxx 5 has no effect on the direction of IShares TIPS i.e., IShares TIPS and FlexShares IBoxx go up and down completely randomly.

Pair Corralation between IShares TIPS and FlexShares IBoxx

Considering the 90-day investment horizon iShares TIPS Bond is expected to under-perform the FlexShares IBoxx. In addition to that, IShares TIPS is 1.08 times more volatile than FlexShares iBoxx 5 Year. It trades about -0.19 of its total potential returns per unit of risk. FlexShares iBoxx 5 Year is currently generating about -0.19 per unit of volatility. If you would invest  2,346  in FlexShares iBoxx 5 Year on September 20, 2024 and sell it today you would lose (24.00) from holding FlexShares iBoxx 5 Year or give up 1.02% of portfolio value over 90 days.

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

iShares TIPS Bond  vs.  FlexShares iBoxx 5 Year

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.

FlexShares iBoxx 5

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FlexShares iBoxx 5 Year has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, FlexShares IBoxx is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with IShares TIPS and FlexShares IBoxx

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

The idea behind iShares TIPS Bond and FlexShares iBoxx 5 Year 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.