Correlation Between IShares Core and ProShares MSCI

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

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

Diversification Opportunities for IShares Core and ProShares MSCI

0.66

Correlation Coefficient

IShares Core  ProShares MSCI

Poor diversification

The 3 months correlation between IShares and ProShares is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core SP and ProShares MSCI EAFE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares MSCI EAFE and IShares Core 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 Core SP are associated (or correlated) with ProShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares MSCI EAFE has no effect on the direction of IShares Core i.e., IShares Core and ProShares MSCI go up and down completely randomly.

Pair Corralation between IShares Core and ProShares MSCI

Given the investment horizon of 90 days iShares Core SP is expected to under-perform the ProShares MSCI. In addition to that, IShares Core is 1.25 times more volatile than ProShares MSCI EAFE. It trades about -0.04 of its total potential returns per unit of risk. ProShares MSCI EAFE is currently generating about 0.0 per unit of volatility. If you would invest  3,875  in ProShares MSCI EAFE on December 2, 2024 and sell it today you would lose (8.00) from holding ProShares MSCI EAFE or give up 0.21% of portfolio value over 90 days.

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

iShares Core SP  vs.  ProShares MSCI EAFE

iShares Core SP

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Core SP has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, IShares Core is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

ProShares MSCI EAFE

Risk-Adjusted Performance

Very Weak

Over the last 90 days ProShares MSCI EAFE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, ProShares MSCI is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with IShares Core and ProShares MSCI

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

The idea behind iShares Core SP and ProShares MSCI EAFE 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.