Correlation Between IShares Europe and IShares MSCI

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

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

Diversification Opportunities for IShares Europe and IShares MSCI

0.94

Correlation Coefficient

IShares Europe  IShares MSCI

Almost no diversification

The 3 months correlation between IShares and IShares is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding iShares Europe ETF and iShares MSCI Spain in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI Spain and IShares Europe 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 Europe ETF are associated (or correlated) with IShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MSCI Spain has no effect on the direction of IShares Europe i.e., IShares Europe and IShares MSCI go up and down completely randomly.

Pair Corralation between IShares Europe and IShares MSCI

Considering the 90-day investment horizon iShares Europe ETF is expected to generate 0.57 times more return on investment than IShares MSCI. However, iShares Europe ETF is 1.75 times less risky than IShares MSCI. It trades about 0.22 of its potential returns per unit of risk. iShares MSCI Spain is currently generating about 0.1 per unit of risk. If you would invest  5,296  in iShares Europe ETF on September 14, 2024 and sell it today you would earn a total of  126.00  from holding iShares Europe ETF or generate 2.38% return on investment over 90 days.

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

iShares Europe ETF  vs.  iShares MSCI Spain

iShares Europe ETF

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Europe ETF has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable technical and fundamental indicators, IShares Europe is not utilizing all of its potentials. The newest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

iShares MSCI Spain

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares MSCI Spain has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, IShares MSCI is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with IShares Europe and IShares MSCI

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

The idea behind iShares Europe ETF and iShares MSCI Spain 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.