Correlation Between IShares TIPS and IShares Broad

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

Diversification Opportunities for IShares TIPS and IShares Broad

-0.12

Correlation Coefficient

IShares TIPS  IShares Broad

Good diversification

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

Pair Corralation between IShares TIPS and IShares Broad

Considering the 90-day investment horizon iShares TIPS Bond is expected to under-perform the IShares Broad. In addition to that, IShares TIPS is 1.33 times more volatile than iShares Broad USD. It trades about -0.06 of its total potential returns per unit of risk. iShares Broad USD is currently generating about 0.16 per unit of volatility. If you would invest  3,663  in iShares Broad USD on September 12, 2024 and sell it today you would earn a total of  72.00  from holding iShares Broad USD or generate 1.97% 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.  iShares Broad USD

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.

iShares Broad USD

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Broad USD are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical indicators, IShares Broad is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares TIPS and IShares Broad

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

The idea behind iShares TIPS Bond and iShares Broad USD 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.

Check out your portfolio center.

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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.