Correlation Between MicroSectors FANG and IShares MSCI

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

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

Diversification Opportunities for MicroSectors FANG and IShares MSCI

0.94

Correlation Coefficient

MicroSectors FANG  IShares MSCI

Almost no diversification

The 3 months correlation between MicroSectors and IShares is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG ETN and iShares MSCI Kokusai in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI Kokusai and MicroSectors FANG 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 MicroSectors FANG ETN 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 Kokusai has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and IShares MSCI go up and down completely randomly.

Pair Corralation between MicroSectors FANG and IShares MSCI

Given the investment horizon of 90 days MicroSectors FANG ETN is expected to generate 2.3 times more return on investment than IShares MSCI. However, MicroSectors FANG is 2.3 times more volatile than iShares MSCI Kokusai. It trades about 0.18 of its potential returns per unit of risk. iShares MSCI Kokusai is currently generating about 0.19 per unit of risk. If you would invest  4,639  in MicroSectors FANG ETN on September 4, 2024 and sell it today you would earn a total of  805.00  from holding MicroSectors FANG ETN or generate 17.35% return on investment over 90 days.

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

MicroSectors FANG ETN  vs.  iShares MSCI Kokusai

MicroSectors FANG ETN

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MicroSectors FANG ETN are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, MicroSectors FANG unveiled solid returns over the last few months and may actually be approaching a breakup point.

iShares MSCI Kokusai

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI Kokusai are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite quite sluggish basic indicators, IShares MSCI may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with MicroSectors FANG and IShares MSCI

The main advantage of trading using opposite MicroSectors FANG and IShares MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MicroSectors FANG 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 MicroSectors FANG ETN and iShares MSCI Kokusai 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.