Correlation Between IShares MSCI and IShares SPTSX

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

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

Diversification Opportunities for IShares MSCI and IShares SPTSX

0.53

Correlation Coefficient

IShares MSCI  IShares SPTSX

Very weak diversification

The 3 months correlation between IShares and IShares is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI EAFE and iShares SPTSX Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SPTSX 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 EAFE are associated (or correlated) with IShares SPTSX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares SPTSX Small has no effect on the direction of IShares MSCI i.e., IShares MSCI and IShares SPTSX go up and down completely randomly.

Pair Corralation between IShares MSCI and IShares SPTSX

Assuming the 90 days trading horizon IShares MSCI is expected to generate 23.03 times less return on investment than IShares SPTSX. But when comparing it to its historical volatility, iShares MSCI EAFE is 1.17 times less risky than IShares SPTSX. It trades about 0.01 of its potential returns per unit of risk. iShares SPTSX Small is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  1,949  in iShares SPTSX Small on September 2, 2024 and sell it today you would earn a total of  220.00  from holding iShares SPTSX Small or generate 11.29% return on investment over 90 days.

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

iShares MSCI EAFE  vs.  iShares SPTSX Small

iShares MSCI EAFE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares MSCI EAFE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic 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 SPTSX Small

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SPTSX Small are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, IShares SPTSX may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares MSCI and IShares SPTSX

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

The idea behind iShares MSCI EAFE and iShares SPTSX Small 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.