Correlation Between IShares MSCI and Financial Select

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

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

Diversification Opportunities for IShares MSCI and Financial Select

-0.7

Correlation Coefficient

IShares MSCI  Financial Select

Excellent diversification

The 3 months correlation between IShares and Financial is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI Emerging and Financial Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Select Sector 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 Emerging are associated (or correlated) with Financial Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Select Sector has no effect on the direction of IShares MSCI i.e., IShares MSCI and Financial Select go up and down completely randomly.

Pair Corralation between IShares MSCI and Financial Select

Considering the 90-day investment horizon IShares MSCI is expected to generate 6.68 times less return on investment than Financial Select. In addition to that, IShares MSCI is 1.01 times more volatile than Financial Select Sector. It trades about 0.01 of its total potential returns per unit of risk. Financial Select Sector is currently generating about 0.07 per unit of volatility. If you would invest  3,455  in Financial Select Sector on October 12, 2024 and sell it today you would earn a total of  1,277  from holding Financial Select Sector or generate 36.96% return on investment over 90 days.

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

iShares MSCI Emerging  vs.  Financial Select Sector

iShares MSCI Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares MSCI Emerging has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

Financial Select Sector

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Financial Select Sector are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable essential indicators, Financial Select is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with IShares MSCI and Financial Select

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

The idea behind iShares MSCI Emerging and Financial Select Sector 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.