Correlation Between IShares Core and Overlay Shares

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

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

Diversification Opportunities for IShares Core and Overlay Shares

0.98

Correlation Coefficient

IShares Core  Overlay Shares

Almost no diversification

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

Pair Corralation between IShares Core and Overlay Shares

Given the investment horizon of 90 days iShares Core MSCI is expected to generate 0.87 times more return on investment than Overlay Shares. However, iShares Core MSCI is 1.15 times less risky than Overlay Shares. It trades about 0.19 of its potential returns per unit of risk. Overlay Shares Foreign is currently generating about 0.13 per unit of risk. If you would invest  7,094  in iShares Core MSCI on December 26, 2024 and sell it today you would earn a total of  703.00  from holding iShares Core MSCI or generate 9.91% return on investment over 90 days.

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

iShares Core MSCI  vs.  Overlay Shares Foreign

iShares Core MSCI

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core MSCI are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile technical and fundamental indicators, IShares Core may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Overlay Shares Foreign

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Overlay Shares Foreign are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Overlay Shares may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with IShares Core and Overlay Shares

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

The idea behind iShares Core MSCI and Overlay Shares Foreign 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.