Correlation Between IShares Dow and IShares MSCI

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

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

Diversification Opportunities for IShares Dow and IShares MSCI

0.42

Correlation Coefficient

IShares Dow  IShares MSCI

Very weak diversification

The 3 months correlation between IShares and IShares is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding iShares Dow Jones and iShares MSCI Japan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI Japan and IShares Dow 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 Dow Jones 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 Japan has no effect on the direction of IShares Dow i.e., IShares Dow and IShares MSCI go up and down completely randomly.

Pair Corralation between IShares Dow and IShares MSCI

Assuming the 90 days trading horizon IShares Dow is expected to generate 1.67 times less return on investment than IShares MSCI. But when comparing it to its historical volatility, iShares Dow Jones is 1.47 times less risky than IShares MSCI. It trades about 0.06 of its potential returns per unit of risk. iShares MSCI Japan is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  493.00  in iShares MSCI Japan on September 13, 2024 and sell it today you would earn a total of  18.00  from holding iShares MSCI Japan or generate 3.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.46%
Values	Daily Returns

iShares Dow Jones  vs.  iShares MSCI Japan

iShares Dow Jones

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Dow Jones are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, IShares Dow is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

iShares MSCI Japan

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI Japan 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.

Pair Trading with IShares Dow and IShares MSCI

The main advantage of trading using opposite IShares Dow and IShares MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Dow 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 iShares Dow Jones and iShares MSCI Japan 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.