Correlation Between IShares MSCI and Schwab Emerging

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

Diversification Opportunities for IShares MSCI and Schwab Emerging

0.84

Correlation Coefficient

IShares MSCI  Schwab Emerging

Very poor diversification

The 3 months correlation between IShares and Schwab is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI Intl and Schwab Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Emerging Markets 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 Schwab Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Emerging Markets has no effect on the direction of IShares MSCI i.e., IShares MSCI and Schwab Emerging go up and down completely randomly.

Pair Corralation between IShares MSCI and Schwab Emerging

Given the investment horizon of 90 days iShares MSCI Intl is expected to under-perform the Schwab Emerging. But the etf apears to be less risky and, when comparing its historical volatility, iShares MSCI Intl is 1.36 times less risky than Schwab Emerging. The etf trades about -0.29 of its potential returns per unit of risk. The Schwab Emerging Markets is currently generating about -0.12 of returns per unit of risk over similar time horizon. If you would invest  2,741  in Schwab Emerging Markets on October 6, 2024 and sell it today you would lose (66.00) from holding Schwab Emerging Markets or give up 2.41% of portfolio value over 90 days.

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

iShares MSCI Intl  vs.  Schwab Emerging Markets

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.

Schwab Emerging Markets

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Schwab Emerging Markets has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Etf's technical indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the fund shareholders.

Pair Trading with IShares MSCI and Schwab Emerging

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

The idea behind iShares MSCI Intl and Schwab Emerging Markets 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.