Correlation Between London Stock and MSCI

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

By analyzing existing cross correlation between London Stock Exchange and MSCI Inc, you can compare the effects of market volatilities on London Stock and 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 London Stock with a short position of MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of London Stock and MSCI.

Diversification Opportunities for London Stock and MSCI

0.43

Correlation Coefficient

London Stock  MSCI

Very weak diversification

The 3 months correlation between London and MSCI is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding London Stock Exchange and MSCI Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MSCI Inc and London Stock 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 London Stock Exchange are associated (or correlated) with MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MSCI Inc has no effect on the direction of London Stock i.e., London Stock and MSCI go up and down completely randomly.

Pair Corralation between London Stock and MSCI

Assuming the 90 days horizon London Stock is expected to generate 1.69 times less return on investment than MSCI. But when comparing it to its historical volatility, London Stock Exchange is 1.22 times less risky than MSCI. It trades about 0.08 of its potential returns per unit of risk. MSCI Inc is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  54,995  in MSCI Inc on September 20, 2024 and sell it today you would earn a total of  4,795  from holding MSCI Inc or generate 8.72% return on investment over 90 days.

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

London Stock Exchange  vs.  MSCI Inc

London Stock Exchange

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in London Stock Exchange are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, London Stock is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

MSCI Inc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MSCI Inc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating fundamental indicators, MSCI may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with London Stock and MSCI

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

The idea behind London Stock Exchange and MSCI Inc 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.