Correlation Between IShares IBonds and Avantis Core

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

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

Diversification Opportunities for IShares IBonds and Avantis Core

0.85

Correlation Coefficient

IShares IBonds  Avantis Core

Very poor diversification

The 3 months correlation between IShares and Avantis is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding iShares iBonds Dec and Avantis Core Municipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avantis Core Municipal and IShares IBonds 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 iBonds Dec are associated (or correlated) with Avantis Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avantis Core Municipal has no effect on the direction of IShares IBonds i.e., IShares IBonds and Avantis Core go up and down completely randomly.

Pair Corralation between IShares IBonds and Avantis Core

Given the investment horizon of 90 days iShares iBonds Dec is expected to under-perform the Avantis Core. But the etf apears to be less risky and, when comparing its historical volatility, iShares iBonds Dec is 2.06 times less risky than Avantis Core. The etf trades about -0.02 of its potential returns per unit of risk. The Avantis Core Municipal is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  4,641  in Avantis Core Municipal on September 14, 2024 and sell it today you would earn a total of  8.00  from holding Avantis Core Municipal or generate 0.17% return on investment over 90 days.

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

iShares iBonds Dec  vs.  Avantis Core Municipal

iShares iBonds Dec

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares iBonds Dec has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable primary indicators, IShares IBonds is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Avantis Core Municipal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Avantis Core Municipal has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable primary indicators, Avantis Core is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with IShares IBonds and Avantis Core

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

The idea behind iShares iBonds Dec and Avantis Core Municipal 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.