Correlation Between IShares Flexible and IShares Convertible

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

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

Diversification Opportunities for IShares Flexible and IShares Convertible

-0.37

Correlation Coefficient

IShares Flexible  IShares Convertible

Very good diversification

The 3 months correlation between IShares and IShares is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding iShares Flexible Monthly and iShares Convertible Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Convertible Bond and IShares Flexible 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 Flexible Monthly are associated (or correlated) with IShares Convertible. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Convertible Bond has no effect on the direction of IShares Flexible i.e., IShares Flexible and IShares Convertible go up and down completely randomly.

Pair Corralation between IShares Flexible and IShares Convertible

Assuming the 90 days trading horizon IShares Flexible is expected to generate 5.64 times less return on investment than IShares Convertible. But when comparing it to its historical volatility, iShares Flexible Monthly is 2.37 times less risky than IShares Convertible. It trades about 0.01 of its potential returns per unit of risk. iShares Convertible Bond is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,740  in iShares Convertible Bond on September 4, 2024 and sell it today you would earn a total of  5.00  from holding iShares Convertible Bond or generate 0.29% return on investment over 90 days.

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

iShares Flexible Monthly  vs.  iShares Convertible Bond

iShares Flexible Monthly

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Flexible Monthly has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, IShares Flexible is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

iShares Convertible Bond

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Convertible Bond are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, IShares Convertible is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with IShares Flexible and IShares Convertible

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

The idea behind iShares Flexible Monthly and iShares Convertible Bond 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.