Correlation Between IShares MSCI and Franklin International

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

Diversification Opportunities for IShares MSCI and Franklin International

0.03

Correlation Coefficient

IShares MSCI  Franklin International

Significant diversification

The 3 months correlation between IShares and Franklin is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI EAFE and Franklin International Low in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin 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 Franklin International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin International has no effect on the direction of IShares MSCI i.e., IShares MSCI and Franklin International go up and down completely randomly.

Pair Corralation between IShares MSCI and Franklin International

Considering the 90-day investment horizon iShares MSCI EAFE is expected to under-perform the Franklin International. In addition to that, IShares MSCI is 1.39 times more volatile than Franklin International Low. It trades about -0.05 of its total potential returns per unit of risk. Franklin International Low is currently generating about 0.06 per unit of volatility. If you would invest  3,072  in Franklin International Low on September 5, 2024 and sell it today you would earn a total of  66.00  from holding Franklin International Low or generate 2.15% return on investment over 90 days.

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

iShares MSCI EAFE  vs.  Franklin International Low

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 recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Franklin International

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin International Low are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical indicators, Franklin International is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with IShares MSCI and Franklin International

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

The idea behind iShares MSCI EAFE and Franklin International Low 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.