Correlation Between IShares Aaa and IShares 5

Can any of the company-specific risk be diversified away by investing in both IShares Aaa and IShares 5 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 Aaa and IShares 5 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between iShares Aaa and iShares 5 10 Year, you can compare the effects of market volatilities on IShares Aaa and IShares 5 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 Aaa with a short position of IShares 5. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Aaa and IShares 5.

Diversification Opportunities for IShares Aaa and IShares 5

0.98

Correlation Coefficient

IShares Aaa  IShares 5

Almost no diversification

The 3 months correlation between IShares and IShares is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding iShares Aaa and iShares 5 10 Year in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares 5 10 and IShares Aaa 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 Aaa are associated (or correlated) with IShares 5. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares 5 10 has no effect on the direction of IShares Aaa i.e., IShares Aaa and IShares 5 go up and down completely randomly.

Pair Corralation between IShares Aaa and IShares 5

Given the investment horizon of 90 days iShares Aaa is expected to under-perform the IShares 5. In addition to that, IShares Aaa is 1.03 times more volatile than iShares 5 10 Year. It trades about -0.05 of its total potential returns per unit of risk. iShares 5 10 Year is currently generating about -0.02 per unit of volatility. If you would invest  5,093  in iShares 5 10 Year on February 4, 2024 and sell it today you would lose (11.00) from holding iShares 5 10 Year or give up 0.22% of portfolio value over 90 days.

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

iShares Aaa   vs.  iShares 5 10 Year

iShares Aaa

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Aaa has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, IShares Aaa is not utilizing all of its potentials. The new stock price disturbance, may contribute to short-term losses for the investors.

iShares 5 10

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares 5 10 Year has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong forward indicators, IShares 5 is not utilizing all of its potentials. The new stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares Aaa and IShares 5

The main advantage of trading using opposite IShares Aaa and IShares 5 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Aaa position performs unexpectedly, IShares 5 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 5 will offset losses from the drop in IShares 5's long position.

The idea behind iShares Aaa and iShares 5 10 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.