Correlation Between IShares MSCI and IShares Russell

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

Diversification Opportunities for IShares MSCI and IShares Russell

0.8

Correlation Coefficient

IShares MSCI  IShares Russell

Very poor diversification

The 3 months correlation between IShares and IShares is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI USA and iShares Russell Top in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Russell Top 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 IShares Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Russell Top has no effect on the direction of IShares MSCI i.e., IShares MSCI and IShares Russell go up and down completely randomly.

Pair Corralation between IShares MSCI and IShares Russell

Given the investment horizon of 90 days IShares MSCI is expected to generate 1.75 times less return on investment than IShares Russell. In addition to that, IShares MSCI is 1.03 times more volatile than iShares Russell Top. It trades about 0.07 of its total potential returns per unit of risk. iShares Russell Top is currently generating about 0.13 per unit of volatility. If you would invest  8,873  in iShares Russell Top on September 29, 2024 and sell it today you would earn a total of  5,844  from holding iShares Russell Top or generate 65.86% return on investment over 90 days.

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

iShares MSCI USA  vs.  iShares Russell Top

iShares MSCI USA

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI USA are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, IShares MSCI is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

iShares Russell Top

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Russell Top are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, IShares Russell is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with IShares MSCI and IShares Russell

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

The idea behind iShares MSCI USA and iShares Russell Top 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.