Correlation Between IShares Europe and IShares Core

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

Diversification Opportunities for IShares Europe and IShares Core

1.0

Correlation Coefficient

IShares Europe  IShares Core

No risk reduction

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

Pair Corralation between IShares Europe and IShares Core

Considering the 90-day investment horizon iShares Europe ETF is expected to generate 1.01 times more return on investment than IShares Core. However, IShares Europe is 1.01 times more volatile than iShares Core MSCI. It trades about 0.21 of its potential returns per unit of risk. iShares Core MSCI is currently generating about 0.21 per unit of risk. If you would invest  5,207  in iShares Europe ETF on December 29, 2024 and sell it today you would earn a total of  680.00  from holding iShares Europe ETF or generate 13.06% 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 Core MSCI

iShares Europe ETF

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Europe ETF are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain technical and fundamental indicators, IShares Europe showed solid returns over the last few months and may actually be approaching a breakup point.

iShares Core MSCI

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core MSCI are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, IShares Core may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with IShares Europe and IShares Core

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

The idea behind iShares Europe ETF and iShares Core MSCI 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.