Correlation Between IShares IG and IShares Floating

Can any of the company-specific risk be diversified away by investing in both IShares IG and IShares Floating 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 Floating 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 Floating Rate, you can compare the effects of market volatilities on IShares IG and IShares Floating 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 Floating. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares IG and IShares Floating.

Diversification Opportunities for IShares IG and IShares Floating

-0.72

Correlation Coefficient

IShares IG  IShares Floating

Pay attention - limited upside

The 3 months correlation between IShares and IShares is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding iShares IG Corporate and iShares Floating Rate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Floating Rate 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 Floating. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Floating Rate has no effect on the direction of IShares IG i.e., IShares IG and IShares Floating go up and down completely randomly.

Pair Corralation between IShares IG and IShares Floating

Assuming the 90 days trading horizon iShares IG Corporate is expected to under-perform the IShares Floating. In addition to that, IShares IG is 12.12 times more volatile than iShares Floating Rate. It trades about -0.02 of its total potential returns per unit of risk. iShares Floating Rate is currently generating about 0.46 per unit of volatility. If you would invest  1,984  in iShares Floating Rate on September 4, 2024 and sell it today you would earn a total of  21.00  from holding iShares Floating Rate or generate 1.06% return on investment over 90 days.

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

iShares IG Corporate  vs.  iShares Floating Rate

iShares IG Corporate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares IG Corporate has generated negative risk-adjusted returns adding no value to investors with long positions. 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 Floating Rate

Risk-Adjusted Performance

36 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Floating Rate are ranked lower than 36 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, IShares Floating 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 Floating

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

The idea behind iShares IG Corporate and iShares Floating Rate 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.