Correlation Between IShares MSCI and IShares Core

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

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

Diversification Opportunities for IShares MSCI and IShares Core

-0.05

Correlation Coefficient

IShares MSCI  IShares Core

Good diversification

The 3 months correlation between IShares and IShares is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI EM and iShares Core SP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Core SP 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 EM are associated (or correlated) with IShares Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Core SP has no effect on the direction of IShares MSCI i.e., IShares MSCI and IShares Core go up and down completely randomly.

Pair Corralation between IShares MSCI and IShares Core

Assuming the 90 days trading horizon IShares MSCI is expected to generate 2.75 times less return on investment than IShares Core. In addition to that, IShares MSCI is 1.24 times more volatile than iShares Core SP. It trades about 0.06 of its total potential returns per unit of risk. iShares Core SP is currently generating about 0.22 per unit of volatility. If you would invest  54,345  in iShares Core SP on September 23, 2024 and sell it today you would earn a total of  6,229  from holding iShares Core SP or generate 11.46% return on investment over 90 days.

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

iShares MSCI EM  vs.  iShares Core SP

iShares MSCI EM

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI EM are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, IShares MSCI is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

iShares Core SP

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core SP are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, IShares Core may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares MSCI and IShares Core

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

The idea behind iShares MSCI EM and iShares Core SP 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.