Correlation Between IShares Edge and IShares Morningstar

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

Diversification Opportunities for IShares Edge and IShares Morningstar

-0.07

Correlation Coefficient

IShares Edge  IShares Morningstar

Good diversification

The 3 months correlation between IShares and IShares is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding iShares Edge MSCI 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 Edge 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 Edge MSCI 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 Edge i.e., IShares Edge and IShares Morningstar go up and down completely randomly.

Pair Corralation between IShares Edge and IShares Morningstar

Given the investment horizon of 90 days iShares Edge MSCI is expected to generate 0.58 times more return on investment than IShares Morningstar. However, iShares Edge MSCI is 1.72 times less risky than IShares Morningstar. It trades about -0.17 of its potential returns per unit of risk. iShares Morningstar Small Cap is currently generating about -0.25 per unit of risk. If you would invest  2,778  in iShares Edge MSCI on October 11, 2024 and sell it today you would lose (62.00) from holding iShares Edge MSCI or give up 2.23% of portfolio value over 90 days.

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

iShares Edge MSCI  vs.  iShares Morningstar Small Cap

iShares Edge MSCI

Risk-Adjusted Performance

0 of 100

Very Weak

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

iShares Morningstar

Risk-Adjusted Performance

0 of 100

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 Edge and IShares Morningstar

The main advantage of trading using opposite IShares Edge and IShares Morningstar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Edge 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 Edge MSCI 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 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.