Correlation Between IShares MSCI and IShares International

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

By analyzing existing cross correlation between iShares MSCI Emerging and iShares International Developed, you can compare the effects of market volatilities on IShares MSCI and IShares International 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 International. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and IShares International.

Diversification Opportunities for IShares MSCI and IShares International

0.8

Correlation Coefficient

IShares MSCI  IShares International

Very poor diversification

The 3 months correlation between IShares and IShares is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI Emerging and iShares International Develope in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares International 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 Emerging are associated (or correlated) with IShares International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares International has no effect on the direction of IShares MSCI i.e., IShares MSCI and IShares International go up and down completely randomly.

Pair Corralation between IShares MSCI and IShares International

Given the investment horizon of 90 days iShares MSCI Emerging is expected to under-perform the IShares International. But the etf apears to be less risky and, when comparing its historical volatility, iShares MSCI Emerging is 1.12 times less risky than IShares International. The etf trades about -0.09 of its potential returns per unit of risk. The iShares International Developed is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  2,083  in iShares International Developed on September 2, 2024 and sell it today you would lose (14.00) from holding iShares International Developed or give up 0.67% of portfolio value over 90 days.

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

iShares MSCI Emerging  vs.  iShares International Develope

iShares MSCI Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares MSCI Emerging has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable primary indicators, IShares MSCI is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

iShares International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares International Developed has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent technical and fundamental indicators, IShares International is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with IShares MSCI and IShares International

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

The idea behind iShares MSCI Emerging and iShares International Developed 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.