Correlation Between IShares Broad and IShares IBonds

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

By analyzing existing cross correlation between iShares Broad USD and iShares iBonds 2028, you can compare the effects of market volatilities on IShares Broad and IShares IBonds 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 Broad with a short position of IShares IBonds. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Broad and IShares IBonds.

Diversification Opportunities for IShares Broad and IShares IBonds

0.86

Correlation Coefficient

IShares Broad  IShares IBonds

Very poor diversification

The 3 months correlation between IShares and IShares is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding iShares Broad USD and iShares iBonds 2028 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares iBonds 2028 and IShares Broad 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 Broad USD are associated (or correlated) with IShares IBonds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares iBonds 2028 has no effect on the direction of IShares Broad i.e., IShares Broad and IShares IBonds go up and down completely randomly.

Pair Corralation between IShares Broad and IShares IBonds

Given the investment horizon of 90 days iShares Broad USD is expected to under-perform the IShares IBonds. But the etf apears to be less risky and, when comparing its historical volatility, iShares Broad USD is 1.0 times less risky than IShares IBonds. The etf trades about -0.07 of its potential returns per unit of risk. The iShares iBonds 2028 is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  2,339  in iShares iBonds 2028 on September 25, 2024 and sell it today you would lose (7.00) from holding iShares iBonds 2028 or give up 0.3% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.24%
Values	Daily Returns

iShares Broad USD  vs.  iShares iBonds 2028

iShares Broad USD

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Broad USD has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical indicators, IShares Broad is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

iShares iBonds 2028

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares iBonds 2028 are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical indicators, IShares IBonds is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with IShares Broad and IShares IBonds

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

The idea behind iShares Broad USD and iShares iBonds 2028 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.