Correlation Between IShares IBoxx and Principal Exchange

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

By analyzing existing cross correlation between iShares iBoxx Investment and Principal Exchange Traded Funds, you can compare the effects of market volatilities on IShares IBoxx and Principal Exchange 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 IBoxx with a short position of Principal Exchange. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares IBoxx and Principal Exchange.

Diversification Opportunities for IShares IBoxx and Principal Exchange

0.85

Correlation Coefficient

IShares IBoxx  Principal Exchange

Very poor diversification

The 3 months correlation between IShares and Principal is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding iShares iBoxx Investment and Principal Exchange Traded Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal Exchange and IShares IBoxx 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 iBoxx Investment are associated (or correlated) with Principal Exchange. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Principal Exchange has no effect on the direction of IShares IBoxx i.e., IShares IBoxx and Principal Exchange go up and down completely randomly.

Pair Corralation between IShares IBoxx and Principal Exchange

Considering the 90-day investment horizon iShares iBoxx Investment is expected to under-perform the Principal Exchange. In addition to that, IShares IBoxx is 1.17 times more volatile than Principal Exchange Traded Funds. It trades about -0.3 of its total potential returns per unit of risk. Principal Exchange Traded Funds is currently generating about -0.18 per unit of volatility. If you would invest  2,043  in Principal Exchange Traded Funds on January 29, 2024 and sell it today you would lose (35.00) from holding Principal Exchange Traded Funds or give up 1.71% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.45%
Values	Daily Returns

iShares iBoxx Investment  vs.  Principal Exchange Traded Fund

iShares iBoxx Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares iBoxx Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, IShares IBoxx is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Principal Exchange

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Principal Exchange Traded Funds has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Principal Exchange is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with IShares IBoxx and Principal Exchange

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

The idea behind iShares iBoxx Investment and Principal Exchange Traded Funds 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.