Correlation Between IShares TIPS and IShares BBB

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

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

Diversification Opportunities for IShares TIPS and IShares BBB

0.97

Correlation Coefficient

IShares TIPS  IShares BBB

Almost no diversification

The 3 months correlation between IShares and IShares is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding iShares TIPS Bond and iShares BBB Rated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares BBB Rated and IShares TIPS 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 TIPS Bond are associated (or correlated) with IShares BBB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares BBB Rated has no effect on the direction of IShares TIPS i.e., IShares TIPS and IShares BBB go up and down completely randomly.

Pair Corralation between IShares TIPS and IShares BBB

Considering the 90-day investment horizon IShares TIPS is expected to generate 1.67 times less return on investment than IShares BBB. But when comparing it to its historical volatility, iShares TIPS Bond is 1.71 times less risky than IShares BBB. It trades about 0.13 of its potential returns per unit of risk. iShares BBB Rated is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  8,596  in iShares BBB Rated on September 4, 2024 and sell it today you would earn a total of  101.00  from holding iShares BBB Rated or generate 1.17% return on investment over 90 days.

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

iShares TIPS Bond  vs.  iShares BBB Rated

iShares TIPS Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares TIPS Bond has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward indicators, IShares TIPS is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

iShares BBB Rated

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares BBB Rated has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, IShares BBB 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 TIPS and IShares BBB

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

The idea behind iShares TIPS Bond and iShares BBB Rated 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 CEOs Directory module to screen CEOs from public companies around the world.