Correlation Between IShares MSCI and IShares Regional

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

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

Diversification Opportunities for IShares MSCI and IShares Regional

-0.64

Correlation Coefficient

IShares MSCI  IShares Regional

Excellent diversification

The 3 months correlation between IShares and IShares is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI Europe and iShares Regional Banks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Regional Banks 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 Europe are associated (or correlated) with IShares Regional. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Regional Banks has no effect on the direction of IShares MSCI i.e., IShares MSCI and IShares Regional go up and down completely randomly.

Pair Corralation between IShares MSCI and IShares Regional

Given the investment horizon of 90 days iShares MSCI Europe is expected to generate 0.83 times more return on investment than IShares Regional. However, iShares MSCI Europe is 1.2 times less risky than IShares Regional. It trades about 0.3 of its potential returns per unit of risk. iShares Regional Banks is currently generating about -0.09 per unit of risk. If you would invest  2,332  in iShares MSCI Europe on December 29, 2024 and sell it today you would earn a total of  553.00  from holding iShares MSCI Europe or generate 23.71% return on investment over 90 days.

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

iShares MSCI Europe  vs.  iShares Regional Banks

iShares MSCI Europe

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI Europe are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain technical and fundamental indicators, IShares MSCI displayed solid returns over the last few months and may actually be approaching a breakup point.

iShares Regional Banks

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Regional Banks has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Etf's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the exchange-traded fund private investors.

Pair Trading with IShares MSCI and IShares Regional

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

The idea behind iShares MSCI Europe and iShares Regional Banks 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.