Correlation Between IShares China and IShares BRIC

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

By analyzing existing cross correlation between iShares China Large and iShares BRIC 50, you can compare the effects of market volatilities on IShares China and IShares BRIC 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 China with a short position of IShares BRIC. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares China and IShares BRIC.

Diversification Opportunities for IShares China and IShares BRIC

0.89

Correlation Coefficient

IShares China  IShares BRIC

Very poor diversification

The 3 months correlation between IShares and IShares is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding iShares China Large and iShares BRIC 50 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares BRIC 50 and IShares China 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 China Large are associated (or correlated) with IShares BRIC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares BRIC 50 has no effect on the direction of IShares China i.e., IShares China and IShares BRIC go up and down completely randomly.

Pair Corralation between IShares China and IShares BRIC

Assuming the 90 days trading horizon iShares China Large is expected to generate 1.17 times more return on investment than IShares BRIC. However, IShares China is 1.17 times more volatile than iShares BRIC 50. It trades about 0.11 of its potential returns per unit of risk. iShares BRIC 50 is currently generating about 0.08 per unit of risk. If you would invest  7,015  in iShares China Large on September 23, 2024 and sell it today you would earn a total of  1,325  from holding iShares China Large or generate 18.89% return on investment over 90 days.

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

iShares China Large  vs.  iShares BRIC 50

iShares China Large

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares China Large are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental indicators, IShares China unveiled solid returns over the last few months and may actually be approaching a breakup point.

iShares BRIC 50

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares BRIC 50 are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, IShares BRIC may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares China and IShares BRIC

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

The idea behind iShares China Large and iShares BRIC 50 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.