Correlation Between IShares International and FlexShares Global

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Can any of the company-specific risk be diversified away by investing in both IShares International and FlexShares 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 International and FlexShares Global into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares International Developed and FlexShares Global Quality, you can compare the effects of market volatilities on IShares International and FlexShares 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 International with a short position of FlexShares Global. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares International and FlexShares Global.

Diversification Opportunities for IShares International and FlexShares Global

ISharesFlexSharesDiversified AwayISharesFlexSharesDiversified Away100%
0.7
  Correlation Coefficient

Poor diversification

The 3 months correlation between IShares and FlexShares is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding iShares International Develope and FlexShares Global Quality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares Global Quality and IShares International 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 International Developed are associated (or correlated) with FlexShares Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares Global Quality has no effect on the direction of IShares International i.e., IShares International and FlexShares Global go up and down completely randomly.

Pair Corralation between IShares International and FlexShares Global

Given the investment horizon of 90 days iShares International Developed is expected to under-perform the FlexShares Global. In addition to that, IShares International is 1.13 times more volatile than FlexShares Global Quality. It trades about -0.26 of its total potential returns per unit of risk. FlexShares Global Quality is currently generating about -0.09 per unit of volatility. If you would invest  6,256  in FlexShares Global Quality on September 16, 2024 and sell it today you would lose (250.00) from holding FlexShares Global Quality or give up 4.0% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

iShares International Develope  vs.  FlexShares Global Quality

 Performance 
JavaScript chart by amCharts 3.21.15OctNov -10-50
JavaScript chart by amCharts 3.21.15IFGL GQRE
       Timeline  
iShares International 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days iShares International Developed has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Etf's technical and fundamental indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the ETF venture institutional investors.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec2020.52121.52222.523
FlexShares Global Quality 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days FlexShares Global Quality has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, FlexShares Global is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec59.56060.56161.56262.56363.564

IShares International and FlexShares Global Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-1.43-1.1-0.77-0.44-0.110.06080.340.671.01.33 0.20.40.60.8
JavaScript chart by amCharts 3.21.15IFGL GQRE
       Returns  

Pair Trading with IShares International and FlexShares Global

The main advantage of trading using opposite IShares International and FlexShares Global positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares International position performs unexpectedly, FlexShares 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 FlexShares Global will offset losses from the drop in FlexShares Global's long position.
The idea behind iShares International Developed and FlexShares Global Quality 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.

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