Correlation Between IShares 0 and FlexShares IBoxx

Can any of the company-specific risk be diversified away by investing in both IShares 0 and FlexShares 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 IShares 0 and FlexShares IBoxx into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between iShares 0 5 Year and FlexShares iBoxx 3 Year, you can compare the effects of market volatilities on IShares 0 and FlexShares 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 IShares 0 with a short position of FlexShares IBoxx. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares 0 and FlexShares IBoxx.

Diversification Opportunities for IShares 0 and FlexShares IBoxx

0.8

Correlation Coefficient

IShares 0  FlexShares IBoxx

Very poor diversification

The 3 months correlation between IShares and FlexShares is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding iShares 0 5 Year and FlexShares iBoxx 3 Year in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares iBoxx 3 and IShares 0 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 0 5 Year are associated (or correlated) with FlexShares IBoxx. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares iBoxx 3 has no effect on the direction of IShares 0 i.e., IShares 0 and FlexShares IBoxx go up and down completely randomly.

Pair Corralation between IShares 0 and FlexShares IBoxx

Given the investment horizon of 90 days iShares 0 5 Year is expected to generate 0.7 times more return on investment than FlexShares IBoxx. However, iShares 0 5 Year is 1.44 times less risky than FlexShares IBoxx. It trades about 0.09 of its potential returns per unit of risk. FlexShares iBoxx 3 Year is currently generating about 0.01 per unit of risk. If you would invest  9,915  in iShares 0 5 Year on February 1, 2024 and sell it today you would earn a total of  23.00  from holding iShares 0 5 Year or generate 0.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

iShares 0 5 Year  vs.  FlexShares iBoxx 3 Year

iShares 0 5

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares 0 5 Year are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable forward indicators, IShares 0 is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

FlexShares iBoxx 3

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FlexShares iBoxx 3 Year has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, FlexShares IBoxx is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with IShares 0 and FlexShares IBoxx

The main advantage of trading using opposite IShares 0 and FlexShares IBoxx positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares 0 position performs unexpectedly, FlexShares 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 FlexShares IBoxx will offset losses from the drop in FlexShares IBoxx's long position.

The idea behind iShares 0 5 Year and FlexShares iBoxx 3 Year 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.