Correlation Between IShares MSCI and IShares Europe

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

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

Diversification Opportunities for IShares MSCI and IShares Europe

0.99

Correlation Coefficient

IShares MSCI  IShares Europe

No risk reduction

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

Pair Corralation between IShares MSCI and IShares Europe

Considering the 90-day investment horizon iShares MSCI Eurozone is expected to under-perform the IShares Europe. In addition to that, IShares MSCI is 1.2 times more volatile than iShares Europe ETF. It trades about -0.09 of its total potential returns per unit of risk. iShares Europe ETF is currently generating about -0.1 per unit of volatility. If you would invest  5,708  in iShares Europe ETF on September 2, 2024 and sell it today you would lose (310.00) from holding iShares Europe ETF or give up 5.43% 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 Eurozone  vs.  iShares Europe ETF

iShares MSCI Eurozone

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares MSCI Eurozone has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic 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 Europe ETF

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Europe ETF has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable technical and fundamental indicators, IShares Europe is not utilizing all of its potentials. The newest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with IShares MSCI and IShares Europe

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

The idea behind iShares MSCI Eurozone and iShares Europe ETF 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.