Correlation Between IShares MSCI and IShares SP

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

Diversification Opportunities for IShares MSCI and IShares SP

-0.51

Correlation Coefficient

IShares MSCI  IShares SP

Excellent diversification

The 3 months correlation between IShares and IShares is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI Europe and iShares SP Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SP Small 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 SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares SP Small has no effect on the direction of IShares MSCI i.e., IShares MSCI and IShares SP go up and down completely randomly.

Pair Corralation between IShares MSCI and IShares SP

Assuming the 90 days trading horizon IShares MSCI is expected to generate 100.48 times less return on investment than IShares SP. But when comparing it to its historical volatility, iShares MSCI Europe is 2.11 times less risky than IShares SP. It trades about 0.0 of its potential returns per unit of risk. iShares SP Small Cap is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  3,031  in iShares SP Small Cap on September 12, 2024 and sell it today you would earn a total of  500.00  from holding iShares SP Small Cap or generate 16.5% return on investment over 90 days.

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

iShares MSCI Europe  vs.  iShares SP Small Cap

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 SP Small

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SP Small Cap are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, IShares SP displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares MSCI and IShares SP

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

The idea behind iShares MSCI Europe and iShares SP Small Cap 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.