Correlation Between IShares MSCI and Goldman Sachs

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

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

Diversification Opportunities for IShares MSCI and Goldman Sachs

1.0

Correlation Coefficient

IShares MSCI  Goldman Sachs

No risk reduction

The 3 months correlation between IShares and Goldman is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI USA and Goldman Sachs Equal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goldman Sachs Equal 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 USA are associated (or correlated) with Goldman Sachs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Goldman Sachs Equal has no effect on the direction of IShares MSCI i.e., IShares MSCI and Goldman Sachs go up and down completely randomly.

Pair Corralation between IShares MSCI and Goldman Sachs

Given the investment horizon of 90 days iShares MSCI USA is expected to under-perform the Goldman Sachs. But the etf apears to be less risky and, when comparing its historical volatility, iShares MSCI USA is 1.0 times less risky than Goldman Sachs. The etf trades about -0.09 of its potential returns per unit of risk. The Goldman Sachs Equal is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  8,231  in Goldman Sachs Equal on November 28, 2024 and sell it today you would lose (299.00) from holding Goldman Sachs Equal or give up 3.63% 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 USA  vs.  Goldman Sachs Equal

iShares MSCI USA

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares MSCI USA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, IShares MSCI is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Goldman Sachs Equal

Risk-Adjusted Performance

Very Weak

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

Pair Trading with IShares MSCI and Goldman Sachs

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

The idea behind iShares MSCI USA and Goldman Sachs Equal 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.