Correlation Between IShares MSCI and Energy Select

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

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

Diversification Opportunities for IShares MSCI and Energy Select

0.98

Correlation Coefficient

IShares MSCI  Energy Select

Almost no diversification

The 3 months correlation between IShares and Energy is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI Global and Energy Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Select Sector 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 Global are associated (or correlated) with Energy Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Select Sector has no effect on the direction of IShares MSCI i.e., IShares MSCI and Energy Select go up and down completely randomly.

Pair Corralation between IShares MSCI and Energy Select

Given the investment horizon of 90 days iShares MSCI Global is expected to under-perform the Energy Select. But the etf apears to be less risky and, when comparing its historical volatility, iShares MSCI Global is 1.16 times less risky than Energy Select. The etf trades about -0.02 of its potential returns per unit of risk. The Energy Select Sector is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  8,460  in Energy Select Sector on December 5, 2024 and sell it today you would earn a total of  110.00  from holding Energy Select Sector or generate 1.3% return on investment over 90 days.

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

iShares MSCI Global  vs.  Energy Select Sector

iShares MSCI Global

Risk-Adjusted Performance

Very Weak

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

Energy Select Sector

Risk-Adjusted Performance

Very Weak

Over the last 90 days Energy Select Sector has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Etf's essential indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the fund shareholders.

Pair Trading with IShares MSCI and Energy Select

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

The idea behind iShares MSCI Global and Energy Select Sector 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 Global Correlations module to find global opportunities by holding instruments from different markets.