Correlation Between IShares Agency and IShares CMBS
Can any of the company-specific risk be diversified away by investing in both IShares Agency and IShares CMBS 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 Agency and IShares CMBS into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares Agency Bond and iShares CMBS ETF, you can compare the effects of market volatilities on IShares Agency and IShares CMBS 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 Agency with a short position of IShares CMBS. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Agency and IShares CMBS.
Diversification Opportunities for IShares Agency and IShares CMBS
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between IShares and IShares is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding iShares Agency Bond and iShares CMBS ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares CMBS ETF and IShares Agency 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 Agency Bond are associated (or correlated) with IShares CMBS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares CMBS ETF has no effect on the direction of IShares Agency i.e., IShares Agency and IShares CMBS go up and down completely randomly.
Pair Corralation between IShares Agency and IShares CMBS
Considering the 90-day investment horizon IShares Agency is expected to generate 1.13 times less return on investment than IShares CMBS. But when comparing it to its historical volatility, iShares Agency Bond is 1.2 times less risky than IShares CMBS. It trades about 0.19 of its potential returns per unit of risk. iShares CMBS ETF is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest 4,718 in iShares CMBS ETF on November 9, 2024 and sell it today you would earn a total of 48.00 from holding iShares CMBS ETF or generate 1.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
iShares Agency Bond vs. iShares CMBS ETF
Performance |
| Timeline |
| iShares Agency Bond |
| iShares CMBS ETF |
IShares Agency and IShares CMBS Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares Agency and IShares CMBS
The main advantage of trading using opposite IShares Agency and IShares CMBS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Agency position performs unexpectedly, IShares CMBS 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 CMBS will offset losses from the drop in IShares CMBS's long position.| IShares Agency vs. iShares Intermediate GovernmentCredit | IShares Agency vs. iShares GovernmentCredit Bond | IShares Agency vs. iShares New York | IShares Agency vs. iShares California Muni |
| IShares CMBS vs. iShares Agency Bond | IShares CMBS vs. iShares GNMA Bond | IShares CMBS vs. iShares JP Morgan | IShares CMBS vs. iShares Aaa |
Check out your portfolio center.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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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