Correlation Between IShares IG and IShares JP

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

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

Diversification Opportunities for IShares IG and IShares JP

0.88

Correlation Coefficient

IShares IG  IShares JP

Very poor diversification

The 3 months correlation between IShares and IShares is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding iShares IG Corporate and iShares JP Morgan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares JP Morgan and IShares IG 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 IG Corporate are associated (or correlated) with IShares JP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares JP Morgan has no effect on the direction of IShares IG i.e., IShares IG and IShares JP go up and down completely randomly.

Pair Corralation between IShares IG and IShares JP

Assuming the 90 days trading horizon IShares IG is expected to generate 2.83 times less return on investment than IShares JP. In addition to that, IShares IG is 1.2 times more volatile than iShares JP Morgan. It trades about 0.02 of its total potential returns per unit of risk. iShares JP Morgan is currently generating about 0.06 per unit of volatility. If you would invest  1,595  in iShares JP Morgan on September 3, 2024 and sell it today you would earn a total of  20.00  from holding iShares JP Morgan or generate 1.25% return on investment over 90 days.

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

iShares IG Corporate  vs.  iShares JP Morgan

iShares IG Corporate

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares IG Corporate are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, IShares IG is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

iShares JP Morgan

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares JP Morgan are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental drivers, IShares JP 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 IG and IShares JP

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

The idea behind iShares IG Corporate and iShares JP Morgan 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.