Correlation Between IShares Agency and WisdomTree High
Can any of the company-specific risk be diversified away by investing in both IShares Agency and WisdomTree High 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 Agency and WisdomTree High into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares Agency Bond and WisdomTree High Yield, you can compare the effects of market volatilities on IShares Agency and WisdomTree High 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 Agency with a short position of WisdomTree High. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Agency and WisdomTree High.
Diversification Opportunities for IShares Agency and WisdomTree High
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between IShares and WisdomTree is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding iShares Agency Bond and WisdomTree High Yield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree High Yield and IShares Agency 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 Agency Bond are associated (or correlated) with WisdomTree High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree High Yield has no effect on the direction of IShares Agency i.e., IShares Agency and WisdomTree High go up and down completely randomly.
Pair Corralation between IShares Agency and WisdomTree High
Considering the 90-day investment horizon iShares Agency Bond is expected to generate 0.52 times more return on investment than WisdomTree High. However, iShares Agency Bond is 1.91 times less risky than WisdomTree High. It trades about -0.14 of its potential returns per unit of risk. WisdomTree High Yield is currently generating about -0.36 per unit of risk. If you would invest 10,740 in iShares Agency Bond on January 20, 2024 and sell it today you would lose (61.00) from holding iShares Agency Bond or give up 0.57% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
iShares Agency Bond vs. WisdomTree High Yield
Performance |
| Timeline |
| iShares Agency Bond |
| WisdomTree High Yield |
IShares Agency and WisdomTree High Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares Agency and WisdomTree High
The main advantage of trading using opposite IShares Agency and WisdomTree High positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Agency position performs unexpectedly, WisdomTree High 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 WisdomTree High will offset losses from the drop in WisdomTree High's long position.The idea behind iShares Agency Bond and WisdomTree High Yield 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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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 Stocks Directory module to find actively traded stocks across global markets.
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