Correlation Between SOFR and IShares IV

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

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

Diversification Opportunities for SOFR and IShares IV

-0.54

Correlation Coefficient

SOFR  IShares IV

Excellent diversification

The 3 months correlation between SOFR and IShares is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding SOFR and iShares IV Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares IV Public and SOFR 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 SOFR are associated (or correlated) with IShares IV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares IV Public has no effect on the direction of SOFR i.e., SOFR and IShares IV go up and down completely randomly.

Pair Corralation between SOFR and IShares IV

Given the investment horizon of 90 days SOFR is expected to generate 0.24 times more return on investment than IShares IV. However, SOFR is 4.2 times less risky than IShares IV. It trades about 0.14 of its potential returns per unit of risk. iShares IV Public is currently generating about -0.13 per unit of risk. If you would invest  10,012  in SOFR on September 26, 2024 and sell it today you would earn a total of  40.00  from holding SOFR or generate 0.4% return on investment over 90 days.

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

SOFR  vs.  iShares IV Public

SOFR

Risk-Adjusted Performance

16 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in SOFR are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, SOFR is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

iShares IV Public

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with SOFR and IShares IV

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

The idea behind SOFR and iShares IV Public 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.