Correlation Between IShares International and IShares Morningstar

Can any of the company-specific risk be diversified away by investing in both IShares International 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 International 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 International Developed and iShares Morningstar Small Cap, you can compare the effects of market volatilities on IShares International 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 International with a short position of IShares Morningstar. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares International and IShares Morningstar.

Diversification Opportunities for IShares International and IShares Morningstar

-0.5

Correlation Coefficient

IShares International  IShares Morningstar

Very good diversification

The 3 months correlation between IShares and IShares is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding iShares International Develope 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 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 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 International i.e., IShares International and IShares Morningstar go up and down completely randomly.

Pair Corralation between IShares International and IShares Morningstar

Given the investment horizon of 90 days iShares International Developed is expected to generate 0.8 times more return on investment than IShares Morningstar. However, iShares International Developed is 1.25 times less risky than IShares Morningstar. It trades about 0.24 of its potential returns per unit of risk. iShares Morningstar Small Cap is currently generating about -0.07 per unit of risk. If you would invest  3,393  in iShares International Developed on December 20, 2024 and sell it today you would earn a total of  414.00  from holding iShares International Developed or generate 12.2% return on investment over 90 days.

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

iShares International Develope  vs.  iShares Morningstar Small Cap

iShares International

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares International Developed are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite quite abnormal basic indicators, IShares International may actually be approaching a critical reversion point that can send shares even higher in April 2025.

iShares Morningstar

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Morningstar Small Cap has generated negative risk-adjusted returns adding no value to investors with long positions. 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 International and IShares Morningstar

The main advantage of trading using opposite IShares International and IShares Morningstar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares International 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 International Developed 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.