Correlation Between IShares Currency and Xtrackers MSCI

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

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

Diversification Opportunities for IShares Currency and Xtrackers MSCI

1.0

Correlation Coefficient

IShares Currency  Xtrackers MSCI

No risk reduction

The 3 months correlation between IShares and Xtrackers is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding iShares Currency Hedged and Xtrackers MSCI EAFE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers MSCI EAFE and IShares Currency 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 Currency Hedged are associated (or correlated) with Xtrackers MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers MSCI EAFE has no effect on the direction of IShares Currency i.e., IShares Currency and Xtrackers MSCI go up and down completely randomly.

Pair Corralation between IShares Currency and Xtrackers MSCI

Given the investment horizon of 90 days IShares Currency is expected to generate 1.03 times less return on investment than Xtrackers MSCI. But when comparing it to its historical volatility, iShares Currency Hedged is 1.0 times less risky than Xtrackers MSCI. It trades about 0.07 of its potential returns per unit of risk. Xtrackers MSCI EAFE is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  4,103  in Xtrackers MSCI EAFE on September 12, 2024 and sell it today you would earn a total of  122.00  from holding Xtrackers MSCI EAFE or generate 2.97% return on investment over 90 days.

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

iShares Currency Hedged  vs.  Xtrackers MSCI EAFE

iShares Currency Hedged

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Currency Hedged are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, IShares Currency is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Xtrackers MSCI EAFE

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers MSCI EAFE are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Xtrackers MSCI is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with IShares Currency and Xtrackers MSCI

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

The idea behind iShares Currency Hedged and Xtrackers MSCI EAFE 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.