Correlation Between Brompton North and IShares MSCI

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

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

Diversification Opportunities for Brompton North and IShares MSCI

0.33

Correlation Coefficient

Brompton North  IShares MSCI

Weak diversification

The 3 months correlation between Brompton and IShares is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Brompton North American and iShares MSCI World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI World and Brompton North 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 Brompton North American 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 World has no effect on the direction of Brompton North i.e., Brompton North and IShares MSCI go up and down completely randomly.

Pair Corralation between Brompton North and IShares MSCI

Assuming the 90 days trading horizon Brompton North American is expected to under-perform the IShares MSCI. But the etf apears to be less risky and, when comparing its historical volatility, Brompton North American is 1.18 times less risky than IShares MSCI. The etf trades about -0.06 of its potential returns per unit of risk. The iShares MSCI World is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  9,635  in iShares MSCI World on November 29, 2024 and sell it today you would earn a total of  255.00  from holding iShares MSCI World or generate 2.65% return on investment over 90 days.

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

Brompton North American  vs.  iShares MSCI World

Brompton North American

Risk-Adjusted Performance

Very Weak

Over the last 90 days Brompton North American has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Brompton North is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

iShares MSCI World

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI World are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, IShares MSCI is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Brompton North and IShares MSCI

The main advantage of trading using opposite Brompton North and IShares MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Brompton North 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 Brompton North American and iShares MSCI World 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 Transaction History module to view history of all your transactions and understand their impact on performance.