Correlation Between IShares MSCI and VanEck Africa

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

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

Diversification Opportunities for IShares MSCI and VanEck Africa

0.07

Correlation Coefficient

IShares MSCI  VanEck Africa

Significant diversification

The 3 months correlation between IShares and VanEck is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI Australia and VanEck Africa Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck Africa Index 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 Australia are associated (or correlated) with VanEck Africa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck Africa Index has no effect on the direction of IShares MSCI i.e., IShares MSCI and VanEck Africa go up and down completely randomly.

Pair Corralation between IShares MSCI and VanEck Africa

Considering the 90-day investment horizon iShares MSCI Australia is expected to under-perform the VanEck Africa. But the etf apears to be less risky and, when comparing its historical volatility, iShares MSCI Australia is 1.04 times less risky than VanEck Africa. The etf trades about -0.01 of its potential returns per unit of risk. The VanEck Africa Index is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  1,555  in VanEck Africa Index on December 28, 2024 and sell it today you would earn a total of  208.00  from holding VanEck Africa Index or generate 13.38% return on investment over 90 days.

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

iShares MSCI Australia  vs.  VanEck Africa Index

iShares MSCI Australia

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares MSCI Australia 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.

VanEck Africa Index

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in VanEck Africa Index are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain technical and fundamental indicators, VanEck Africa disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares MSCI and VanEck Africa

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

The idea behind iShares MSCI Australia and VanEck Africa Index 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.