Correlation Between IShares Core and IShares 10

Can any of the company-specific risk be diversified away by investing in both IShares Core and IShares 10 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 Core and IShares 10 into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for IShares Core and IShares 10

0.95

Correlation Coefficient

IShares Core  IShares 10

Almost no diversification

The 3 months correlation between IShares and IShares is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core 10 and iShares 10 Year in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares 10 Year and IShares Core 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 Core 10 are associated (or correlated) with IShares 10. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares 10 Year has no effect on the direction of IShares Core i.e., IShares Core and IShares 10 go up and down completely randomly.

Pair Corralation between IShares Core and IShares 10

Given the investment horizon of 90 days iShares Core 10 is expected to under-perform the IShares 10. In addition to that, IShares Core is 1.05 times more volatile than iShares 10 Year. It trades about -0.04 of its total potential returns per unit of risk. iShares 10 Year is currently generating about -0.01 per unit of volatility. If you would invest  5,245  in iShares 10 Year on September 4, 2024 and sell it today you would lose (37.00) from holding iShares 10 Year or give up 0.71% of portfolio value over 90 days.

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

iShares Core 10  vs.  iShares 10 Year

iShares Core 10

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Core 10 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, IShares Core is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

iShares 10 Year

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares 10 Year has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong essential indicators, IShares 10 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares Core and IShares 10

The main advantage of trading using opposite IShares Core and IShares 10 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Core position performs unexpectedly, IShares 10 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 10 will offset losses from the drop in IShares 10's long position.

The idea behind iShares Core 10 and iShares 10 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.