Correlation Between IShares IBoxx and IShares Inflation

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

By analyzing existing cross correlation between iShares iBoxx Investment and iShares Inflation Hedged, you can compare the effects of market volatilities on IShares IBoxx and IShares Inflation 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 Inflation. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares IBoxx and IShares Inflation.

Diversification Opportunities for IShares IBoxx and IShares Inflation

0.82

Correlation Coefficient

IShares IBoxx  IShares Inflation

Very poor diversification

The 3 months correlation between IShares and IShares is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding iShares iBoxx Investment and iShares Inflation Hedged in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Inflation Hedged 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 Investment are associated (or correlated) with IShares Inflation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Inflation Hedged has no effect on the direction of IShares IBoxx i.e., IShares IBoxx and IShares Inflation go up and down completely randomly.

Pair Corralation between IShares IBoxx and IShares Inflation

Considering the 90-day investment horizon iShares iBoxx Investment is expected to under-perform the IShares Inflation. In addition to that, IShares IBoxx is 1.14 times more volatile than iShares Inflation Hedged. It trades about -0.06 of its total potential returns per unit of risk. iShares Inflation Hedged is currently generating about 0.01 per unit of volatility. If you would invest  2,557  in iShares Inflation Hedged on January 30, 2024 and sell it today you would earn a total of  3.00  from holding iShares Inflation Hedged or generate 0.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	97.73%
Values	Daily Returns

iShares iBoxx Investment  vs.  iShares Inflation Hedged

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.

iShares Inflation Hedged

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Inflation Hedged has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental indicators, IShares Inflation is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with IShares IBoxx and IShares Inflation

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

The idea behind iShares iBoxx Investment and iShares Inflation Hedged 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.