Correlation Between MSCI and Value Line

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

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

Diversification Opportunities for MSCI and Value Line

0.65

Correlation Coefficient

MSCI  Value Line

Poor diversification

The 3 months correlation between MSCI and Value is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding MSCI Inc and Value Line in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Value Line and 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 MSCI Inc are associated (or correlated) with Value Line. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Value Line has no effect on the direction of MSCI i.e., MSCI and Value Line go up and down completely randomly.

Pair Corralation between MSCI and Value Line

Given the investment horizon of 90 days MSCI is expected to generate 3.63 times less return on investment than Value Line. But when comparing it to its historical volatility, MSCI Inc is 2.68 times less risky than Value Line. It trades about 0.09 of its potential returns per unit of risk. Value Line is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  4,198  in Value Line on September 2, 2024 and sell it today you would earn a total of  1,008  from holding Value Line or generate 24.01% return on investment over 90 days.

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

MSCI Inc  vs.  Value Line

MSCI Inc

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MSCI Inc are ranked lower than 7 (%) 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.

Value Line

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Value Line are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak essential indicators, Value Line unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MSCI and Value Line

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

The idea behind MSCI Inc and Value Line 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.