Correlation Between IShares MSCI and Lyxor Smart

Can any of the company-specific risk be diversified away by investing in both IShares MSCI and Lyxor Smart 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 Lyxor Smart 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 Lyxor Smart Overnight, you can compare the effects of market volatilities on IShares MSCI and Lyxor Smart 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 Lyxor Smart. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and Lyxor Smart.

Diversification Opportunities for IShares MSCI and Lyxor Smart

0.4

Correlation Coefficient

IShares MSCI  Lyxor Smart

Very weak diversification

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

Pair Corralation between IShares MSCI and Lyxor Smart

Assuming the 90 days trading horizon iShares MSCI Japan is expected to generate 43.12 times more return on investment than Lyxor Smart. However, IShares MSCI is 43.12 times more volatile than Lyxor Smart Overnight. It trades about 0.04 of its potential returns per unit of risk. Lyxor Smart Overnight is currently generating about 0.96 per unit of risk. If you would invest  419.00  in iShares MSCI Japan on October 11, 2024 and sell it today you would earn a total of  80.00  from holding iShares MSCI Japan or generate 19.09% return on investment over 90 days.

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

iShares MSCI Japan  vs.  Lyxor Smart Overnight

iShares MSCI Japan

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI Japan are ranked lower than 2 (%) 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 current stock price uproar, may contribute to short-horizon losses for the private investors.

Lyxor Smart Overnight

Risk-Adjusted Performance

56 of 100

Excellent

Compared to the overall equity markets, risk-adjusted returns on investments in Lyxor Smart Overnight are ranked lower than 56 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Lyxor Smart is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with IShares MSCI and Lyxor Smart

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

The idea behind iShares MSCI Japan and Lyxor Smart Overnight 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.