Correlation Between IShares MSCI and LG Russell

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

By analyzing existing cross correlation between iShares MSCI World and LG Russell 2000, you can compare the effects of market volatilities on IShares MSCI and LG Russell 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 LG Russell. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and LG Russell.

Diversification Opportunities for IShares MSCI and LG Russell

0.93

Correlation Coefficient

IShares MSCI  LG Russell

Almost no diversification

The 3 months correlation between IShares and RTWO is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI World and LG Russell 2000 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LG Russell 2000 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 World are associated (or correlated) with LG Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LG Russell 2000 has no effect on the direction of IShares MSCI i.e., IShares MSCI and LG Russell go up and down completely randomly.

Pair Corralation between IShares MSCI and LG Russell

Assuming the 90 days trading horizon iShares MSCI World is expected to generate 0.48 times more return on investment than LG Russell. However, iShares MSCI World is 2.08 times less risky than LG Russell. It trades about 0.2 of its potential returns per unit of risk. LG Russell 2000 is currently generating about 0.09 per unit of risk. If you would invest  7,060  in iShares MSCI World on September 26, 2024 and sell it today you would earn a total of  626.00  from holding iShares MSCI World or generate 8.87% return on investment over 90 days.

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

iShares MSCI World  vs.  LG Russell 2000

iShares MSCI World

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI World are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, IShares MSCI may actually be approaching a critical reversion point that can send shares even higher in January 2025.

LG Russell 2000

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in LG Russell 2000 are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, LG Russell may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares MSCI and LG Russell

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

The idea behind iShares MSCI World and LG Russell 2000 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.