Correlation Between IShares MSCI and IShares BRIC

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

By analyzing existing cross correlation between iShares MSCI EM and iShares BRIC 50, you can compare the effects of market volatilities on IShares MSCI and IShares BRIC 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 BRIC. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and IShares BRIC.

Diversification Opportunities for IShares MSCI and IShares BRIC

0.39

Correlation Coefficient

IShares MSCI  IShares BRIC

Weak diversification

The 3 months correlation between IShares and IShares is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI EM and iShares BRIC 50 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares BRIC 50 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 EM are associated (or correlated) with IShares BRIC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares BRIC 50 has no effect on the direction of IShares MSCI i.e., IShares MSCI and IShares BRIC go up and down completely randomly.

Pair Corralation between IShares MSCI and IShares BRIC

Assuming the 90 days trading horizon iShares MSCI EM is expected to generate 0.51 times more return on investment than IShares BRIC. However, iShares MSCI EM is 1.95 times less risky than IShares BRIC. It trades about 0.04 of its potential returns per unit of risk. iShares BRIC 50 is currently generating about 0.0 per unit of risk. If you would invest  3,532  in iShares MSCI EM on October 22, 2024 and sell it today you would earn a total of  534.00  from holding iShares MSCI EM or generate 15.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.02%
Values	Daily Returns

iShares MSCI EM  vs.  iShares BRIC 50

iShares MSCI EM

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares MSCI EM has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, IShares MSCI is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

iShares BRIC 50

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares BRIC 50 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the fund sophisticated investors.

Pair Trading with IShares MSCI and IShares BRIC

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

The idea behind iShares MSCI EM and iShares BRIC 50 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.