Correlation Between IShares MSCI and Hartford Multifactor

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

Diversification Opportunities for IShares MSCI and Hartford Multifactor

0.97

Correlation Coefficient

IShares MSCI  Hartford Multifactor

Almost no diversification

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

Pair Corralation between IShares MSCI and Hartford Multifactor

Considering the 90-day investment horizon iShares MSCI EAFE is expected to generate 1.13 times more return on investment than Hartford Multifactor. However, IShares MSCI is 1.13 times more volatile than Hartford Multifactor Developed. It trades about 0.15 of its potential returns per unit of risk. Hartford Multifactor Developed is currently generating about 0.08 per unit of risk. If you would invest  5,375  in iShares MSCI EAFE on December 1, 2024 and sell it today you would earn a total of  355.00  from holding iShares MSCI EAFE or generate 6.6% return on investment over 90 days.

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

iShares MSCI EAFE  vs.  Hartford Multifactor Developed

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 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile technical and fundamental indicators, IShares MSCI may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Hartford Multifactor

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Hartford Multifactor Developed are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, Hartford Multifactor is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with IShares MSCI and Hartford Multifactor

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

The idea behind iShares MSCI EAFE and Hartford Multifactor Developed 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.