Correlation Between IShares MSCI and SEI Select

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

Diversification Opportunities for IShares MSCI and SEI Select

0.69

Correlation Coefficient

IShares MSCI  SEI Select

Poor diversification

The 3 months correlation between IShares and SEI is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI EAFE and SEI Select International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SEI Select International 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 SEI Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SEI Select International has no effect on the direction of IShares MSCI i.e., IShares MSCI and SEI Select go up and down completely randomly.

Pair Corralation between IShares MSCI and SEI Select

Given the investment horizon of 90 days IShares MSCI is expected to generate 1.12 times less return on investment than SEI Select. But when comparing it to its historical volatility, iShares MSCI EAFE is 1.41 times less risky than SEI Select. It trades about 0.32 of its potential returns per unit of risk. SEI Select International is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  2,374  in SEI Select International on December 19, 2024 and sell it today you would earn a total of  335.00  from holding SEI Select International or generate 14.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.33%
Values	Daily Returns

iShares MSCI EAFE  vs.  SEI Select International

iShares MSCI EAFE

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI EAFE are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, IShares MSCI showed solid returns over the last few months and may actually be approaching a breakup point.

SEI Select International

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SEI Select International are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak forward indicators, SEI Select exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares MSCI and SEI Select

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

The idea behind iShares MSCI EAFE and SEI Select 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.

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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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.