Correlation Between Xtrackers MSCI and IShares Edge

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

By analyzing existing cross correlation between Xtrackers MSCI EAFE and iShares Edge MSCI, you can compare the effects of market volatilities on Xtrackers MSCI and IShares Edge 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 Xtrackers MSCI with a short position of IShares Edge. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xtrackers MSCI and IShares Edge.

Diversification Opportunities for Xtrackers MSCI and IShares Edge

0.99

Correlation Coefficient

Xtrackers MSCI  IShares Edge

No risk reduction

The 3 months correlation between Xtrackers and IShares is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers MSCI EAFE and iShares Edge MSCI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Edge MSCI and Xtrackers 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 Xtrackers MSCI EAFE are associated (or correlated) with IShares Edge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Edge MSCI has no effect on the direction of Xtrackers MSCI i.e., Xtrackers MSCI and IShares Edge go up and down completely randomly.

Pair Corralation between Xtrackers MSCI and IShares Edge

Given the investment horizon of 90 days Xtrackers MSCI is expected to generate 1.16 times less return on investment than IShares Edge. But when comparing it to its historical volatility, Xtrackers MSCI EAFE is 1.28 times less risky than IShares Edge. It trades about 0.29 of its potential returns per unit of risk. iShares Edge MSCI is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  2,688  in iShares Edge MSCI on December 23, 2024 and sell it today you would earn a total of  417.00  from holding iShares Edge MSCI or generate 15.51% return on investment over 90 days.

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

Xtrackers MSCI EAFE  vs.  iShares Edge MSCI

Xtrackers MSCI EAFE

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers MSCI EAFE are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal technical and fundamental indicators, Xtrackers MSCI reported solid returns over the last few months and may actually be approaching a breakup point.

iShares Edge MSCI

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Edge MSCI are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating essential indicators, IShares Edge unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Xtrackers MSCI and IShares Edge

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

The idea behind Xtrackers MSCI EAFE and iShares Edge MSCI 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 Transaction History module to view history of all your transactions and understand their impact on performance.