Correlation Between IShares MSCI and IShares Equity

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

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

Diversification Opportunities for IShares MSCI and IShares Equity

-0.42

Correlation Coefficient

IShares MSCI  IShares Equity

Very good 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 MSCI Intl and iShares Equity Factor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Equity Factor 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 Intl are associated (or correlated) with IShares Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Equity Factor has no effect on the direction of IShares MSCI i.e., IShares MSCI and IShares Equity go up and down completely randomly.

Pair Corralation between IShares MSCI and IShares Equity

Given the investment horizon of 90 days IShares MSCI is expected to generate 22.66 times less return on investment than IShares Equity. In addition to that, IShares MSCI is 1.5 times more volatile than iShares Equity Factor. It trades about 0.01 of its total potential returns per unit of risk. iShares Equity Factor is currently generating about 0.29 per unit of volatility. If you would invest  6,069  in iShares Equity Factor on September 19, 2024 and sell it today you would earn a total of  186.00  from holding iShares Equity Factor or generate 3.06% return on investment over 90 days.

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

iShares MSCI Intl  vs.  iShares Equity Factor

iShares MSCI Intl

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares MSCI Intl has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, IShares MSCI is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

iShares Equity Factor

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Equity Factor are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating technical and fundamental indicators, IShares Equity may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares MSCI and IShares Equity

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

The idea behind iShares MSCI Intl and iShares Equity Factor 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.