Correlation Between IShares Trust and IShares TIPS

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

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

Diversification Opportunities for IShares Trust and IShares TIPS

0.92

Correlation Coefficient

IShares Trust  IShares TIPS

Almost no diversification

The 3 months correlation between IShares and IShares is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding iShares Trust and iShares TIPS Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares TIPS Bond and IShares Trust 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 Trust are associated (or correlated) with IShares TIPS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares TIPS Bond has no effect on the direction of IShares Trust i.e., IShares Trust and IShares TIPS go up and down completely randomly.

Pair Corralation between IShares Trust and IShares TIPS

Given the investment horizon of 90 days iShares Trust is expected to under-perform the IShares TIPS. In addition to that, IShares Trust is 1.35 times more volatile than iShares TIPS Bond. It trades about -0.07 of its total potential returns per unit of risk. iShares TIPS Bond is currently generating about -0.07 per unit of volatility. If you would invest  10,967  in iShares TIPS Bond on September 12, 2024 and sell it today you would lose (124.00) from holding iShares TIPS Bond or give up 1.13% of portfolio value over 90 days.

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

iShares Trust  vs.  iShares TIPS Bond

iShares Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward indicators, IShares Trust is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

iShares TIPS Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares TIPS Bond has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward indicators, IShares TIPS 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 Trust and IShares TIPS

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

The idea behind iShares Trust and iShares TIPS Bond 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.