Correlation Between IShares IBoxx and IShares Short

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

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

Diversification Opportunities for IShares IBoxx and IShares Short

0.86

Correlation Coefficient

IShares IBoxx  IShares Short

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 iBoxx High and iShares Short Maturity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Short Maturity and IShares IBoxx 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 iBoxx High are associated (or correlated) with IShares Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Short Maturity has no effect on the direction of IShares IBoxx i.e., IShares IBoxx and IShares Short go up and down completely randomly.

Pair Corralation between IShares IBoxx and IShares Short

Considering the 90-day investment horizon iShares iBoxx High is expected to generate 3.35 times more return on investment than IShares Short. However, IShares IBoxx is 3.35 times more volatile than iShares Short Maturity. It trades about 0.04 of its potential returns per unit of risk. iShares Short Maturity is currently generating about 0.1 per unit of risk. If you would invest  6,831  in iShares iBoxx High on February 5, 2024 and sell it today you would earn a total of  877.00  from holding iShares iBoxx High or generate 12.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.8%
Values	Daily Returns

iShares iBoxx High  vs.  iShares Short Maturity

iShares iBoxx High

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares iBoxx High are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, IShares IBoxx is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

iShares Short Maturity

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Short Maturity are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, IShares Short is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with IShares IBoxx and IShares Short

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

The idea behind iShares iBoxx High and iShares Short Maturity 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.