Correlation Between IShares MSCI and IShares Govt

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

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

Diversification Opportunities for IShares MSCI and IShares Govt

-0.01

Correlation Coefficient

IShares MSCI  IShares Govt

Good diversification

The 3 months correlation between IShares and IShares is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI China and iShares Govt Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Govt Bond 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 China are associated (or correlated) with IShares Govt. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Govt Bond has no effect on the direction of IShares MSCI i.e., IShares MSCI and IShares Govt go up and down completely randomly.

Pair Corralation between IShares MSCI and IShares Govt

Assuming the 90 days trading horizon iShares MSCI China is expected to generate 3.89 times more return on investment than IShares Govt. However, IShares MSCI is 3.89 times more volatile than iShares Govt Bond. It trades about 0.04 of its potential returns per unit of risk. iShares Govt Bond is currently generating about 0.05 per unit of risk. If you would invest  382.00  in iShares MSCI China on September 28, 2024 and sell it today you would earn a total of  58.00  from holding iShares MSCI China or generate 15.18% return on investment over 90 days.

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

iShares MSCI China  vs.  iShares Govt Bond

iShares MSCI China

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI China are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental drivers, IShares MSCI is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

iShares Govt Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Govt Bond has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, IShares Govt is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with IShares MSCI and IShares Govt

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

The idea behind iShares MSCI China and iShares Govt Bond 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.