Correlation Between IShares MSCI and IShares Latin

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

Diversification Opportunities for IShares MSCI and IShares Latin

0.14

Correlation Coefficient

IShares MSCI  IShares Latin

Average diversification

The 3 months correlation between IShares and IShares is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI Australia and iShares Latin America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Latin America 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 IShares Latin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Latin America has no effect on the direction of IShares MSCI i.e., IShares MSCI and IShares Latin go up and down completely randomly.

Pair Corralation between IShares MSCI and IShares Latin

Considering the 90-day investment horizon iShares MSCI Australia is expected to under-perform the IShares Latin. But the etf apears to be less risky and, when comparing its historical volatility, iShares MSCI Australia is 1.2 times less risky than IShares Latin. The etf trades about -0.03 of its potential returns per unit of risk. The iShares Latin America is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  2,096  in iShares Latin America on December 29, 2024 and sell it today you would earn a total of  281.00  from holding iShares Latin America or generate 13.41% 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.  iShares Latin America

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.

iShares Latin America

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Latin America are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal essential indicators, IShares Latin reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares MSCI and IShares Latin

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

The idea behind iShares MSCI Australia and iShares Latin America 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.

Check out your portfolio center.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.