Correlation Between IShares MSCI and ETC Group

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

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

Diversification Opportunities for IShares MSCI and ETC Group

0.32

Correlation Coefficient

IShares MSCI  ETC Group

Weak diversification

The 3 months correlation between IShares and ETC is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI Japan and ETC Group Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ETC Group Global 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 Japan are associated (or correlated) with ETC Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ETC Group Global has no effect on the direction of IShares MSCI i.e., IShares MSCI and ETC Group go up and down completely randomly.

Pair Corralation between IShares MSCI and ETC Group

Assuming the 90 days trading horizon IShares MSCI is expected to generate 2.77 times less return on investment than ETC Group. But when comparing it to its historical volatility, iShares MSCI Japan is 2.03 times less risky than ETC Group. It trades about 0.09 of its potential returns per unit of risk. ETC Group Global is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  86,270  in ETC Group Global on September 5, 2024 and sell it today you would earn a total of  12,560  from holding ETC Group Global or generate 14.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

iShares MSCI Japan  vs.  ETC Group Global

iShares MSCI Japan

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI Japan are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, IShares MSCI is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

ETC Group Global

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ETC Group Global are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, ETC Group unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares MSCI and ETC Group

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

The idea behind iShares MSCI Japan and ETC Group Global 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..