Correlation Between IShares II and IShares MSCI

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

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

Diversification Opportunities for IShares II and IShares MSCI

0.5

Correlation Coefficient

IShares II  IShares MSCI

Very weak diversification

The 3 months correlation between IShares and IShares is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding iShares II Public and iShares MSCI EM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI EM and IShares II 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 II Public are associated (or correlated) with IShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MSCI EM has no effect on the direction of IShares II i.e., IShares II and IShares MSCI go up and down completely randomly.

Pair Corralation between IShares II and IShares MSCI

Assuming the 90 days trading horizon IShares II is expected to generate 2.58 times less return on investment than IShares MSCI. But when comparing it to its historical volatility, iShares II Public is 1.07 times less risky than IShares MSCI. It trades about 0.06 of its potential returns per unit of risk. iShares MSCI EM is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  3,764  in iShares MSCI EM on September 14, 2024 and sell it today you would earn a total of  319.00  from holding iShares MSCI EM or generate 8.48% return on investment over 90 days.

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

iShares II Public  vs.  iShares MSCI EM

iShares II Public

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares II Public are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, IShares II is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

iShares MSCI EM

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI EM are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, IShares MSCI may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares II and IShares MSCI

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

The idea behind iShares II Public and iShares MSCI EM 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.