Correlation Between IShares MSCI and IShares II

Can any of the company-specific risk be diversified away by investing in both IShares MSCI and IShares II 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 II 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 II Public, you can compare the effects of market volatilities on IShares MSCI and IShares II 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 II. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and IShares II.

Diversification Opportunities for IShares MSCI and IShares II

0.6

Correlation Coefficient

IShares MSCI  IShares II

Poor diversification

The 3 months correlation between IShares and IShares is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI EM and iShares II Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares II Public 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 II. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares II Public has no effect on the direction of IShares MSCI i.e., IShares MSCI and IShares II go up and down completely randomly.

Pair Corralation between IShares MSCI and IShares II

Assuming the 90 days trading horizon IShares MSCI is expected to generate 11.0 times less return on investment than IShares II. But when comparing it to its historical volatility, iShares MSCI EM is 1.03 times less risky than IShares II. It trades about 0.01 of its potential returns per unit of risk. iShares II Public is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  4,969  in iShares II Public on December 31, 2024 and sell it today you would earn a total of  453.00  from holding iShares II Public or generate 9.12% return on investment over 90 days.

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

iShares MSCI EM  vs.  iShares II Public

iShares MSCI EM

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI EM are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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 II Public

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares II Public are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, IShares II may actually be approaching a critical reversion point that can send shares even higher in May 2025.

Pair Trading with IShares MSCI and IShares II

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

The idea behind iShares MSCI EM and iShares II Public 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.