Correlation Between IShares 7 and US Treasury

Can any of the company-specific risk be diversified away by investing in both IShares 7 and US Treasury 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 7 and US Treasury into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between iShares 7 10 Year and US Treasury 5, you can compare the effects of market volatilities on IShares 7 and US Treasury 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 7 with a short position of US Treasury. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares 7 and US Treasury.

Diversification Opportunities for IShares 7 and US Treasury

1.0

Correlation Coefficient

IShares 7  US Treasury

No risk reduction

The 3 months correlation between IShares and UFIV is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding iShares 7 10 Year and US Treasury 5 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Treasury 5 and IShares 7 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 7 10 Year are associated (or correlated) with US Treasury. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Treasury 5 has no effect on the direction of IShares 7 i.e., IShares 7 and US Treasury go up and down completely randomly.

Pair Corralation between IShares 7 and US Treasury

Considering the 90-day investment horizon iShares 7 10 Year is expected to under-perform the US Treasury. In addition to that, IShares 7 is 1.61 times more volatile than US Treasury 5. It trades about -0.12 of its total potential returns per unit of risk. US Treasury 5 is currently generating about -0.11 per unit of volatility. If you would invest  4,922  in US Treasury 5 on September 5, 2024 and sell it today you would lose (84.00) from holding US Treasury 5 or give up 1.71% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

iShares 7 10 Year  vs.  US Treasury 5

iShares 7 10

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares 7 10 Year has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, IShares 7 is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

US Treasury 5

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days US Treasury 5 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable forward indicators, US Treasury is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with IShares 7 and US Treasury

The main advantage of trading using opposite IShares 7 and US Treasury positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares 7 position performs unexpectedly, US Treasury 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 US Treasury will offset losses from the drop in US Treasury's long position.

The idea behind iShares 7 10 Year and US Treasury 5 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.