Correlation Between IShares Europe and IShares Global

Can any of the company-specific risk be diversified away by investing in both IShares Europe and IShares Global 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 Global 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 Global 100, you can compare the effects of market volatilities on IShares Europe and IShares Global 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 Global. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Europe and IShares Global.

Diversification Opportunities for IShares Europe and IShares Global

-0.43

Correlation Coefficient

IShares Europe  IShares Global

Very good diversification

The 3 months correlation between IShares and IShares is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding iShares Europe ETF and iShares Global 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Global 100 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 Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Global 100 has no effect on the direction of IShares Europe i.e., IShares Europe and IShares Global go up and down completely randomly.

Pair Corralation between IShares Europe and IShares Global

Considering the 90-day investment horizon IShares Europe is expected to generate 2.1 times less return on investment than IShares Global. In addition to that, IShares Europe is 1.03 times more volatile than iShares Global 100. It trades about 0.06 of its total potential returns per unit of risk. iShares Global 100 is currently generating about 0.13 per unit of volatility. If you would invest  6,184  in iShares Global 100 on September 18, 2024 and sell it today you would earn a total of  4,159  from holding iShares Global 100 or generate 67.25% return on investment over 90 days.

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

iShares Europe ETF  vs.  iShares Global 100

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 Global 100

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Global 100 are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, IShares Global may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares Europe and IShares Global

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

The idea behind iShares Europe ETF and iShares Global 100 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.