Correlation Between IShares MSCI and Capital Group

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

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

Diversification Opportunities for IShares MSCI and Capital Group

1.0

Correlation Coefficient

IShares MSCI  Capital Group

No risk reduction

The 3 months correlation between IShares and Capital is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI EAFE and Capital Group International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Group Intern 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 EAFE are associated (or correlated) with Capital Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Group Intern has no effect on the direction of IShares MSCI i.e., IShares MSCI and Capital Group go up and down completely randomly.

Pair Corralation between IShares MSCI and Capital Group

Considering the 90-day investment horizon iShares MSCI EAFE is expected to generate 1.05 times more return on investment than Capital Group. However, IShares MSCI is 1.05 times more volatile than Capital Group International. It trades about 0.16 of its potential returns per unit of risk. Capital Group International is currently generating about 0.17 per unit of risk. If you would invest  7,561  in iShares MSCI EAFE on December 29, 2024 and sell it today you would earn a total of  685.00  from holding iShares MSCI EAFE or generate 9.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.39%
Values	Daily Returns

iShares MSCI EAFE  vs.  Capital Group International

iShares MSCI EAFE

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI EAFE are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating technical and fundamental indicators, IShares MSCI may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Capital Group Intern

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Group International are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain forward indicators, Capital Group may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with IShares MSCI and Capital Group

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

The idea behind iShares MSCI EAFE and Capital Group International 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.