Correlation Between IShares National and IShares Short

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

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

Diversification Opportunities for IShares National and IShares Short

0.85

Correlation Coefficient

IShares National  IShares Short

Very poor diversification

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

Pair Corralation between IShares National and IShares Short

Considering the 90-day investment horizon iShares National Muni is expected to generate 2.66 times more return on investment than IShares Short. However, IShares National is 2.66 times more volatile than iShares Short Term National. It trades about 0.08 of its potential returns per unit of risk. iShares Short Term National is currently generating about 0.07 per unit of risk. If you would invest  10,686  in iShares National Muni on August 30, 2024 and sell it today you would earn a total of  143.00  from holding iShares National Muni or generate 1.34% return on investment over 90 days.

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

iShares National Muni  vs.  iShares Short Term National

iShares National Muni

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares National Muni are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, IShares National is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

iShares Short Term

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Short Term National are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, IShares Short 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 National and IShares Short

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

The idea behind iShares National Muni and iShares Short Term National 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.

Check out your portfolio center.

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.