Correlation Between IShares MSCI and T Rowe

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

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

Diversification Opportunities for IShares MSCI and T Rowe

0.99

Correlation Coefficient

IShares MSCI  T Rowe

No risk reduction

The 3 months correlation between IShares and TOUS is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI EAFE and T Rowe Price in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on T Rowe Price 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 EAFE are associated (or correlated) with T Rowe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of T Rowe Price has no effect on the direction of IShares MSCI i.e., IShares MSCI and T Rowe go up and down completely randomly.

Pair Corralation between IShares MSCI and T Rowe

Considering the 90-day investment horizon iShares MSCI EAFE is expected to under-perform the T Rowe. But the etf apears to be less risky and, when comparing its historical volatility, iShares MSCI EAFE is 1.01 times less risky than T Rowe. The etf trades about -0.12 of its potential returns per unit of risk. The T Rowe Price is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  2,891  in T Rowe Price on August 30, 2024 and sell it today you would lose (148.00) from holding T Rowe Price or give up 5.12% of portfolio value over 90 days.

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

iShares MSCI EAFE  vs.  T Rowe Price

iShares MSCI EAFE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares MSCI EAFE has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, IShares MSCI is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

T Rowe Price

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with IShares MSCI and T Rowe

The main advantage of trading using opposite IShares MSCI and T Rowe positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares MSCI position performs unexpectedly, T Rowe 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 T Rowe will offset losses from the drop in T Rowe's long position.

The idea behind iShares MSCI EAFE and T Rowe Price 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.