Correlation Between IShares MSCI and IShares Morningstar

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

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

Diversification Opportunities for IShares MSCI and IShares Morningstar

0.36

Correlation Coefficient

IShares MSCI  IShares Morningstar

Weak diversification

The 3 months correlation between IShares and IShares is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI Intl and iShares Morningstar Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Morningstar and IShares MSCI 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 MSCI Intl are associated (or correlated) with IShares Morningstar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Morningstar has no effect on the direction of IShares MSCI i.e., IShares MSCI and IShares Morningstar go up and down completely randomly.

Pair Corralation between IShares MSCI and IShares Morningstar

Given the investment horizon of 90 days IShares MSCI is expected to generate 1.56 times less return on investment than IShares Morningstar. But when comparing it to its historical volatility, iShares MSCI Intl is 1.16 times less risky than IShares Morningstar. It trades about 0.09 of its potential returns per unit of risk. iShares Morningstar Small Cap is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  6,413  in iShares Morningstar Small Cap on October 26, 2024 and sell it today you would earn a total of  128.00  from holding iShares Morningstar Small Cap or generate 2.0% return on investment over 90 days.

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

iShares MSCI Intl  vs.  iShares Morningstar Small Cap

iShares MSCI Intl

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares MSCI Intl has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, IShares MSCI is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

iShares Morningstar

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Morningstar Small Cap are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable fundamental indicators, IShares Morningstar is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with IShares MSCI and IShares Morningstar

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

The idea behind iShares MSCI Intl and iShares Morningstar Small Cap 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.