Correlation Between SHP ETF and IShares MSCI

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

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

Diversification Opportunities for SHP ETF and IShares MSCI

0.85

Correlation Coefficient

SHP ETF  IShares MSCI

Very poor diversification

The 3 months correlation between SHP and IShares is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding SHP ETF Trust and iShares MSCI EAFE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI EAFE and SHP ETF 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 SHP ETF Trust 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 EAFE has no effect on the direction of SHP ETF i.e., SHP ETF and IShares MSCI go up and down completely randomly.

Pair Corralation between SHP ETF and IShares MSCI

Given the investment horizon of 90 days SHP ETF is expected to generate 6.58 times less return on investment than IShares MSCI. But when comparing it to its historical volatility, SHP ETF Trust is 14.56 times less risky than IShares MSCI. It trades about 0.28 of its potential returns per unit of risk. iShares MSCI EAFE is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  6,085  in iShares MSCI EAFE on December 28, 2024 and sell it today you would earn a total of  405.00  from holding iShares MSCI EAFE or generate 6.66% return on investment over 90 days.

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

SHP ETF Trust  vs.  iShares MSCI EAFE

SHP ETF Trust

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SHP ETF Trust are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical indicators, SHP ETF is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

iShares MSCI EAFE

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI EAFE are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal fundamental indicators, IShares MSCI may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with SHP ETF and IShares MSCI

The main advantage of trading using opposite SHP ETF and IShares MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SHP ETF 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 SHP ETF Trust and iShares MSCI EAFE 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.