Correlation Between IShares MSCI and IShares China

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

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

Diversification Opportunities for IShares MSCI and IShares China

0.09

Correlation Coefficient

IShares MSCI  IShares China

Significant diversification

The 3 months correlation between IShares and IShares is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI Europe and iShares China in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares China 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 Europe are associated (or correlated) with IShares China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares China has no effect on the direction of IShares MSCI i.e., IShares MSCI and IShares China go up and down completely randomly.

Pair Corralation between IShares MSCI and IShares China

Assuming the 90 days trading horizon iShares MSCI Europe is expected to under-perform the IShares China. But the etf apears to be less risky and, when comparing its historical volatility, iShares MSCI Europe is 5.09 times less risky than IShares China. The etf trades about -0.01 of its potential returns per unit of risk. The iShares China is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,680  in iShares China on September 15, 2024 and sell it today you would earn a total of  423.00  from holding iShares China or generate 25.18% return on investment over 90 days.

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

iShares MSCI Europe  vs.  iShares China

iShares MSCI Europe

Risk-Adjusted Performance

0 of 100

Very Weak

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

iShares China

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares China are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical indicators, IShares China displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares MSCI and IShares China

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

The idea behind iShares MSCI Europe and iShares China 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.

Check out your portfolio center.

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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.