Correlation Between IShares MSCI and Freedom Day

Can any of the company-specific risk be diversified away by investing in both IShares MSCI and Freedom Day 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 Freedom Day 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 Freedom Day Dividend, you can compare the effects of market volatilities on IShares MSCI and Freedom Day 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 Freedom Day. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and Freedom Day.

Diversification Opportunities for IShares MSCI and Freedom Day

0.8

Correlation Coefficient

IShares MSCI  Freedom Day

Very poor diversification

The 3 months correlation between IShares and Freedom is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI World and Freedom Day Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freedom Day Dividend 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 Freedom Day. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Freedom Day Dividend has no effect on the direction of IShares MSCI i.e., IShares MSCI and Freedom Day go up and down completely randomly.

Pair Corralation between IShares MSCI and Freedom Day

Given the investment horizon of 90 days iShares MSCI World is expected to generate 0.97 times more return on investment than Freedom Day. However, iShares MSCI World is 1.03 times less risky than Freedom Day. It trades about 0.11 of its potential returns per unit of risk. Freedom Day Dividend is currently generating about 0.09 per unit of risk. If you would invest  10,638  in iShares MSCI World on September 14, 2024 and sell it today you would earn a total of  5,516  from holding iShares MSCI World or generate 51.85% return on investment over 90 days.

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

iShares MSCI World  vs.  Freedom Day Dividend

iShares MSCI World

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI World are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, IShares MSCI is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Freedom Day Dividend

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Freedom Day Dividend are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Freedom Day is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares MSCI and Freedom Day

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

The idea behind iShares MSCI World and Freedom Day Dividend 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.