Correlation Between IShares Core and Lyxor MSCI

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

By analyzing existing cross correlation between iShares Core MSCI and Lyxor MSCI Europe, you can compare the effects of market volatilities on IShares Core and Lyxor MSCI 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 Core with a short position of Lyxor MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Core and Lyxor MSCI.

Diversification Opportunities for IShares Core and Lyxor MSCI

-0.48

Correlation Coefficient

IShares Core  Lyxor MSCI

Very good diversification

The 3 months correlation between IShares and Lyxor is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core MSCI and Lyxor MSCI Europe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lyxor MSCI Europe and IShares Core 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 Core MSCI are associated (or correlated) with Lyxor MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lyxor MSCI Europe has no effect on the direction of IShares Core i.e., IShares Core and Lyxor MSCI go up and down completely randomly.

Pair Corralation between IShares Core and Lyxor MSCI

Assuming the 90 days trading horizon IShares Core is expected to generate 243.27 times less return on investment than Lyxor MSCI. But when comparing it to its historical volatility, iShares Core MSCI is 123.01 times less risky than Lyxor MSCI. It trades about 0.05 of its potential returns per unit of risk. Lyxor MSCI Europe is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  471.00  in Lyxor MSCI Europe on December 30, 2024 and sell it today you would lose (269.00) from holding Lyxor MSCI Europe or give up 57.11% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	96.83%
Values	Daily Returns

iShares Core MSCI  vs.  Lyxor MSCI Europe

iShares Core MSCI

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core MSCI are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, IShares Core is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Lyxor MSCI Europe

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lyxor MSCI Europe are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Lyxor MSCI showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares Core and Lyxor MSCI

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

The idea behind iShares Core MSCI and Lyxor MSCI Europe 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.