Correlation Between IShares MSCI and SHP ETF

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

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

Diversification Opportunities for IShares MSCI and SHP ETF

0.92

Correlation Coefficient

IShares MSCI  SHP ETF

Almost no diversification

The 3 months correlation between IShares and SHP is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI ACWI and SHP ETF Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SHP ETF Trust 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 ACWI are associated (or correlated) with SHP ETF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SHP ETF Trust has no effect on the direction of IShares MSCI i.e., IShares MSCI and SHP ETF go up and down completely randomly.

Pair Corralation between IShares MSCI and SHP ETF

Given the investment horizon of 90 days iShares MSCI ACWI is expected to under-perform the SHP ETF. But the etf apears to be less risky and, when comparing its historical volatility, iShares MSCI ACWI is 1.0 times less risky than SHP ETF. The etf trades about -0.02 of its potential returns per unit of risk. The SHP ETF Trust is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  2,848  in SHP ETF Trust on December 28, 2024 and sell it today you would lose (24.00) from holding SHP ETF Trust or give up 0.84% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.36%
Values	Daily Returns

iShares MSCI ACWI  vs.  SHP ETF Trust

iShares MSCI ACWI

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares MSCI ACWI has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

SHP ETF Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days SHP ETF Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, SHP ETF is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with IShares MSCI and SHP ETF

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

The idea behind iShares MSCI ACWI and SHP ETF Trust 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.