Correlation Between IShares IBoxx and US Treasury

Can any of the company-specific risk be diversified away by investing in both IShares IBoxx 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 IBoxx 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 iBoxx Investment and US Treasury 20, you can compare the effects of market volatilities on IShares IBoxx 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 IBoxx with a short position of US Treasury. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares IBoxx and US Treasury.

Diversification Opportunities for IShares IBoxx and US Treasury

0.97

Correlation Coefficient

IShares IBoxx  US Treasury

Almost no diversification

The 3 months correlation between IShares and UTWY is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding iShares iBoxx Investment and US Treasury 20 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Treasury 20 and IShares IBoxx 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 iBoxx Investment 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 20 has no effect on the direction of IShares IBoxx i.e., IShares IBoxx and US Treasury go up and down completely randomly.

Pair Corralation between IShares IBoxx and US Treasury

Considering the 90-day investment horizon iShares iBoxx Investment is expected to generate 0.66 times more return on investment than US Treasury. However, iShares iBoxx Investment is 1.51 times less risky than US Treasury. It trades about -0.05 of its potential returns per unit of risk. US Treasury 20 is currently generating about -0.13 per unit of risk. If you would invest  11,166  in iShares iBoxx Investment on September 12, 2024 and sell it today you would lose (171.00) from holding iShares iBoxx Investment or give up 1.53% of portfolio value over 90 days.

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

iShares iBoxx Investment  vs.  US Treasury 20

iShares iBoxx Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares iBoxx Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, IShares IBoxx is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

US Treasury 20

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days US Treasury 20 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, US Treasury is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares IBoxx and US Treasury

The main advantage of trading using opposite IShares IBoxx and US Treasury positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares IBoxx 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 iBoxx Investment and US Treasury 20 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 Transaction History module to view history of all your transactions and understand their impact on performance.