Correlation Between IShares Global and IShares Europe

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

By analyzing existing cross correlation between iShares Global 100 and iShares Europe ETF, you can compare the effects of market volatilities on IShares Global and IShares Europe 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 Global with a short position of IShares Europe. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Global and IShares Europe.

Diversification Opportunities for IShares Global and IShares Europe

-0.34

Correlation Coefficient

IShares Global  IShares Europe

Very good diversification

The 3 months correlation between IShares and IShares is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding iShares Global 100 and iShares Europe ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Europe ETF and IShares Global 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 Global 100 are associated (or correlated) with IShares Europe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Europe ETF has no effect on the direction of IShares Global i.e., IShares Global and IShares Europe go up and down completely randomly.

Pair Corralation between IShares Global and IShares Europe

Considering the 90-day investment horizon iShares Global 100 is expected to under-perform the IShares Europe. In addition to that, IShares Global is 1.13 times more volatile than iShares Europe ETF. It trades about -0.07 of its total potential returns per unit of risk. iShares Europe ETF is currently generating about 0.21 per unit of volatility. If you would invest  5,207  in iShares Europe ETF on December 28, 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 Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

iShares Global 100  vs.  iShares Europe ETF

iShares Global 100

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Global 100 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, IShares Global is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

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.

Pair Trading with IShares Global and IShares Europe

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

The idea behind iShares Global 100 and iShares Europe ETF 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.

Check out your portfolio center.

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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.