Correlation Between ETF Series and IShares MSCI

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

By analyzing existing cross correlation between ETF Series Solutions and iShares MSCI USA, you can compare the effects of market volatilities on ETF Series and IShares MSCI 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 ETF Series with a short position of IShares MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of ETF Series and IShares MSCI.

Diversification Opportunities for ETF Series and IShares MSCI

0.81

Correlation Coefficient

ETF Series  IShares MSCI

Very poor diversification

The 3 months correlation between ETF and IShares is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding ETF Series Solutions and iShares MSCI USA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI USA and ETF Series 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 ETF Series Solutions are associated (or correlated) with IShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MSCI USA has no effect on the direction of ETF Series i.e., ETF Series and IShares MSCI go up and down completely randomly.

Pair Corralation between ETF Series and IShares MSCI

Given the investment horizon of 90 days ETF Series Solutions is expected to generate 0.84 times more return on investment than IShares MSCI. However, ETF Series Solutions is 1.19 times less risky than IShares MSCI. It trades about 0.03 of its potential returns per unit of risk. iShares MSCI USA is currently generating about -0.05 per unit of risk. If you would invest  1,943  in ETF Series Solutions on December 28, 2024 and sell it today you would earn a total of  24.00  from holding ETF Series Solutions or generate 1.24% return on investment over 90 days.

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

ETF Series Solutions  vs.  iShares MSCI USA

ETF Series Solutions

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ETF Series Solutions are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable forward indicators, ETF Series is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

iShares MSCI USA

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares MSCI USA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, IShares MSCI is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with ETF Series and IShares MSCI

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

The idea behind ETF Series Solutions and iShares MSCI USA 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.