Correlation Between Ishares Msci and IShares BMFBovespa

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

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

Diversification Opportunities for Ishares Msci and IShares BMFBovespa

-0.68

Correlation Coefficient

Ishares Msci  IShares BMFBovespa

Excellent diversification

The 3 months correlation between Ishares and IShares is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Ishares Msci Brazil and iShares BMFBovespa Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares BMFBovespa Small and Ishares Msci 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 Msci Brazil are associated (or correlated) with IShares BMFBovespa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares BMFBovespa Small has no effect on the direction of Ishares Msci i.e., Ishares Msci and IShares BMFBovespa go up and down completely randomly.

Pair Corralation between Ishares Msci and IShares BMFBovespa

Assuming the 90 days trading horizon Ishares Msci Brazil is expected to under-perform the IShares BMFBovespa. But the etf apears to be less risky and, when comparing its historical volatility, Ishares Msci Brazil is 1.11 times less risky than IShares BMFBovespa. The etf trades about -0.23 of its potential returns per unit of risk. The iShares BMFBovespa Small is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  10,194  in iShares BMFBovespa Small on September 3, 2024 and sell it today you would lose (862.00) from holding iShares BMFBovespa Small or give up 8.46% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	36.51%
Values	Daily Returns

Ishares Msci Brazil  vs.  iShares BMFBovespa Small

Ishares Msci Brazil

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ishares Msci Brazil has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Etf's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the ETF investors.

iShares BMFBovespa Small

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares BMFBovespa Small has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Etf's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Pair Trading with Ishares Msci and IShares BMFBovespa

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

The idea behind Ishares Msci Brazil and iShares BMFBovespa Small 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.