Correlation Between IShares MSCI and FlexShares International

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

Diversification Opportunities for IShares MSCI and FlexShares International

0.97

Correlation Coefficient

IShares MSCI  FlexShares International

Almost no diversification

The 3 months correlation between IShares and FlexShares is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI EAFE and FlexShares International Quali in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares 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 FlexShares International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares International has no effect on the direction of IShares MSCI i.e., IShares MSCI and FlexShares International go up and down completely randomly.

Pair Corralation between IShares MSCI and FlexShares International

Considering the 90-day investment horizon iShares MSCI EAFE is expected to under-perform the FlexShares International. But the etf apears to be less risky and, when comparing its historical volatility, iShares MSCI EAFE is 1.04 times less risky than FlexShares International. The etf trades about -0.09 of its potential returns per unit of risk. The FlexShares International Quality is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  2,272  in FlexShares International Quality on September 16, 2024 and sell it today you would lose (74.00) from holding FlexShares International Quality or give up 3.26% of portfolio value over 90 days.

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

iShares MSCI EAFE  vs.  FlexShares International Quali

iShares MSCI EAFE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares MSCI EAFE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable technical and fundamental indicators, IShares MSCI is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

FlexShares International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FlexShares International Quality has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, FlexShares International is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with IShares MSCI and FlexShares International

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

The idea behind iShares MSCI EAFE and FlexShares International Quality 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.