Correlation Between IShares 1 and IShares Agency
Can any of the company-specific risk be diversified away by investing in both IShares 1 and IShares Agency 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 1 and IShares Agency into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares 1 3 Year and iShares Agency Bond, you can compare the effects of market volatilities on IShares 1 and IShares Agency 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 1 with a short position of IShares Agency. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares 1 and IShares Agency.
Diversification Opportunities for IShares 1 and IShares Agency
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between IShares and IShares is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding iShares 1 3 Year and iShares Agency Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Agency Bond and IShares 1 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 1 3 Year are associated (or correlated) with IShares Agency. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Agency Bond has no effect on the direction of IShares 1 i.e., IShares 1 and IShares Agency go up and down completely randomly.
Pair Corralation between IShares 1 and IShares Agency
Considering the 90-day investment horizon iShares 1 3 Year is expected to generate 0.64 times more return on investment than IShares Agency. However, iShares 1 3 Year is 1.56 times less risky than IShares Agency. It trades about 0.1 of its potential returns per unit of risk. iShares Agency Bond is currently generating about 0.06 per unit of risk. If you would invest 8,084 in iShares 1 3 Year on February 27, 2024 and sell it today you would earn a total of 53.00 from holding iShares 1 3 Year or generate 0.66% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
iShares 1 3 Year vs. iShares Agency Bond
Performance |
| Timeline |
| iShares 1 3 |
| iShares Agency Bond |
IShares 1 and IShares Agency Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares 1 and IShares Agency
The main advantage of trading using opposite IShares 1 and IShares Agency positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares 1 position performs unexpectedly, IShares Agency 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 Agency will offset losses from the drop in IShares Agency's long position.The idea behind iShares 1 3 Year and iShares Agency Bond 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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