Correlation Between Litman Gregory and IShares Core

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

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

Diversification Opportunities for Litman Gregory and IShares Core

-0.4

Correlation Coefficient

Litman Gregory  IShares Core

Very good diversification

The 3 months correlation between Litman and IShares is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Litman Gregory Funds and iShares Core MSCI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Core MSCI and Litman Gregory 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 Litman Gregory Funds are associated (or correlated) with IShares Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Core MSCI has no effect on the direction of Litman Gregory i.e., Litman Gregory and IShares Core go up and down completely randomly.

Pair Corralation between Litman Gregory and IShares Core

Given the investment horizon of 90 days Litman Gregory Funds is expected to generate 0.76 times more return on investment than IShares Core. However, Litman Gregory Funds is 1.31 times less risky than IShares Core. It trades about 0.13 of its potential returns per unit of risk. iShares Core MSCI is currently generating about 0.0 per unit of risk. If you would invest  1,140  in Litman Gregory Funds on September 12, 2024 and sell it today you would earn a total of  57.00  from holding Litman Gregory Funds or generate 5.0% return on investment over 90 days.

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

Litman Gregory Funds  vs.  iShares Core MSCI

Litman Gregory Funds

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Litman Gregory Funds are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Litman Gregory is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

iShares Core MSCI

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days iShares Core MSCI has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, IShares Core is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Litman Gregory and IShares Core

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

The idea behind Litman Gregory Funds and iShares Core MSCI 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.

Check out your portfolio center.

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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.