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 Index and iShares MSCI Emerging, 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

-0.46

Correlation Coefficient

MicroSectors FANG  IShares MSCI

Very good diversification

The 3 months correlation between MicroSectors and IShares is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and iShares MSCI Emerging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI Emerging 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 Index 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 Emerging 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 Index is expected to generate 3.11 times more return on investment than IShares MSCI. However, MicroSectors FANG is 3.11 times more volatile than iShares MSCI Emerging. It trades about 0.22 of its potential returns per unit of risk. iShares MSCI Emerging is currently generating about -0.03 per unit of risk. If you would invest  42,102  in MicroSectors FANG Index on September 19, 2024 and sell it today you would earn a total of  24,781  from holding MicroSectors FANG Index or generate 58.86% return on investment over 90 days.

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

MicroSectors FANG Index  vs.  iShares MSCI Emerging

MicroSectors FANG Index

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in MicroSectors FANG Index are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting technical and fundamental indicators, MicroSectors FANG unveiled solid returns over the last few months and may actually be approaching a breakup point.

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. Despite nearly stable technical and fundamental indicators, IShares MSCI is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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 Index and iShares MSCI Emerging 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.

Check out your portfolio center.

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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.