Correlation Between IShares 20 and US Treasury

Can any of the company-specific risk be diversified away by investing in both IShares 20 and US Treasury 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 20 and US Treasury into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between iShares 20 Year and US Treasury 20, you can compare the effects of market volatilities on IShares 20 and US Treasury 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 20 with a short position of US Treasury. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares 20 and US Treasury.

Diversification Opportunities for IShares 20 and US Treasury

1.0

Correlation Coefficient

IShares 20  US Treasury

No risk reduction

The 3 months correlation between IShares and UTWY is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding iShares 20 Year and US Treasury 20 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Treasury 20 and IShares 20 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 20 Year are associated (or correlated) with US Treasury. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Treasury 20 has no effect on the direction of IShares 20 i.e., IShares 20 and US Treasury go up and down completely randomly.

Pair Corralation between IShares 20 and US Treasury

Considering the 90-day investment horizon iShares 20 Year is expected to under-perform the US Treasury. In addition to that, IShares 20 is 1.36 times more volatile than US Treasury 20. It trades about -0.54 of its total potential returns per unit of risk. US Treasury 20 is currently generating about -0.55 per unit of volatility. If you would invest  4,579  in US Treasury 20 on October 7, 2024 and sell it today you would lose (249.00) from holding US Treasury 20 or give up 5.44% of portfolio value over 90 days.

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

iShares 20 Year  vs.  US Treasury 20

iShares 20 Year

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares 20 Year has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Etf's essential indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the exchange-traded fund private investors.

US Treasury 20

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days US Treasury 20 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, US Treasury 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 20 and US Treasury

The main advantage of trading using opposite IShares 20 and US Treasury positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares 20 position performs unexpectedly, US Treasury 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 US Treasury will offset losses from the drop in US Treasury's long position.

The idea behind iShares 20 Year and US Treasury 20 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.