Correlation Between IShares MSCI and IShares GNMA

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

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

Diversification Opportunities for IShares MSCI and IShares GNMA

-0.56

Correlation Coefficient

IShares MSCI  IShares GNMA

Excellent diversification

The 3 months correlation between IShares and IShares is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI Canada and iShares GNMA Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares GNMA Bond 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 Canada are associated (or correlated) with IShares GNMA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares GNMA Bond has no effect on the direction of IShares MSCI i.e., IShares MSCI and IShares GNMA go up and down completely randomly.

Pair Corralation between IShares MSCI and IShares GNMA

Considering the 90-day investment horizon iShares MSCI Canada is expected to generate 1.89 times more return on investment than IShares GNMA. However, IShares MSCI is 1.89 times more volatile than iShares GNMA Bond. It trades about 0.19 of its potential returns per unit of risk. iShares GNMA Bond is currently generating about -0.04 per unit of risk. If you would invest  3,979  in iShares MSCI Canada on September 2, 2024 and sell it today you would earn a total of  346.00  from holding iShares MSCI Canada or generate 8.7% return on investment over 90 days.

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

iShares MSCI Canada  vs.  iShares GNMA Bond

iShares MSCI Canada

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI Canada are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, IShares MSCI may actually be approaching a critical reversion point that can send shares even higher in January 2025.

iShares GNMA Bond

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with IShares MSCI and IShares GNMA

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

The idea behind iShares MSCI Canada and iShares GNMA Bond 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.