Correlation Between IShares MBS and FlexShares Disciplined

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

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

Diversification Opportunities for IShares MBS and FlexShares Disciplined

0.99

Correlation Coefficient

IShares MBS  FlexShares Disciplined

No risk reduction

The 3 months correlation between IShares and FlexShares is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding iShares MBS ETF and FlexShares Disciplined Duratio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares Disciplined and IShares MBS 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 MBS ETF are associated (or correlated) with FlexShares Disciplined. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares Disciplined has no effect on the direction of IShares MBS i.e., IShares MBS and FlexShares Disciplined go up and down completely randomly.

Pair Corralation between IShares MBS and FlexShares Disciplined

Considering the 90-day investment horizon iShares MBS ETF is expected to under-perform the FlexShares Disciplined. In addition to that, IShares MBS is 1.06 times more volatile than FlexShares Disciplined Duration. It trades about -0.03 of its total potential returns per unit of risk. FlexShares Disciplined Duration is currently generating about -0.02 per unit of volatility. If you would invest  2,068  in FlexShares Disciplined Duration on August 30, 2024 and sell it today you would lose (9.00) from holding FlexShares Disciplined Duration or give up 0.44% of portfolio value over 90 days.

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

iShares MBS ETF  vs.  FlexShares Disciplined Duratio

iShares MBS ETF

Risk-Adjusted Performance

0 of 100

Very Weak

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

FlexShares Disciplined

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with IShares MBS and FlexShares Disciplined

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

The idea behind iShares MBS ETF and FlexShares Disciplined Duration 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.