Correlation Between IShares IG and IShares 1

Can any of the company-specific risk be diversified away by investing in both IShares IG and IShares 1 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 IG and IShares 1 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between iShares IG Corporate and iShares 1 10Yr Laddered, you can compare the effects of market volatilities on IShares IG and IShares 1 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 IG with a short position of IShares 1. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares IG and IShares 1.

Diversification Opportunities for IShares IG and IShares 1

0.33

Correlation Coefficient

IShares IG  IShares 1

Weak diversification

The 3 months correlation between IShares and IShares is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding iShares IG Corporate and iShares 1 10Yr Laddered in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares 1 10Yr and IShares IG 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 IG Corporate are associated (or correlated) with IShares 1. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares 1 10Yr has no effect on the direction of IShares IG i.e., IShares IG and IShares 1 go up and down completely randomly.

Pair Corralation between IShares IG and IShares 1

Assuming the 90 days trading horizon iShares IG Corporate is expected to under-perform the IShares 1. In addition to that, IShares IG is 1.92 times more volatile than iShares 1 10Yr Laddered. It trades about -0.06 of its total potential returns per unit of risk. iShares 1 10Yr Laddered is currently generating about 0.12 per unit of volatility. If you would invest  1,767  in iShares 1 10Yr Laddered on September 11, 2024 and sell it today you would earn a total of  31.00  from holding iShares 1 10Yr Laddered or generate 1.75% return on investment over 90 days.

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

iShares IG Corporate  vs.  iShares 1 10Yr Laddered

iShares IG Corporate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares IG Corporate has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, IShares IG is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

iShares 1 10Yr

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares 1 10Yr Laddered are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical indicators, IShares 1 is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with IShares IG and IShares 1

The main advantage of trading using opposite IShares IG and IShares 1 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares IG position performs unexpectedly, IShares 1 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 1 will offset losses from the drop in IShares 1's long position.

The idea behind iShares IG Corporate and iShares 1 10Yr Laddered 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.