Correlation Between MicroSectors Big and IShares IBoxx

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

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

Diversification Opportunities for MicroSectors Big and IShares IBoxx

-0.4

Correlation Coefficient

MicroSectors Big  IShares IBoxx

Very good diversification

The 3 months correlation between MicroSectors and IShares is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors Big Oil and iShares iBoxx Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares iBoxx Investment and MicroSectors Big 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 MicroSectors Big Oil are associated (or correlated) with IShares IBoxx. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares iBoxx Investment has no effect on the direction of MicroSectors Big i.e., MicroSectors Big and IShares IBoxx go up and down completely randomly.

Pair Corralation between MicroSectors Big and IShares IBoxx

Given the investment horizon of 90 days MicroSectors Big Oil is expected to generate 7.74 times more return on investment than IShares IBoxx. However, MicroSectors Big is 7.74 times more volatile than iShares iBoxx Investment. It trades about 0.06 of its potential returns per unit of risk. iShares iBoxx Investment is currently generating about 0.01 per unit of risk. If you would invest  29,502  in MicroSectors Big Oil on January 25, 2024 and sell it today you would earn a total of  35,659  from holding MicroSectors Big Oil or generate 120.87% return on investment over 90 days.

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

MicroSectors Big Oil  vs.  iShares iBoxx Investment

MicroSectors Big Oil

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in MicroSectors Big Oil are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady technical and fundamental indicators, MicroSectors Big unveiled solid returns over the last few months and may actually be approaching a breakup point.

iShares iBoxx Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares iBoxx Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, IShares IBoxx is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with MicroSectors Big and IShares IBoxx

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

The idea behind MicroSectors Big Oil and iShares iBoxx Investment 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.