Correlation Between IShares MSCI and Lyxor MSCI

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

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

Diversification Opportunities for IShares MSCI and Lyxor MSCI

-0.43

Correlation Coefficient

IShares MSCI  Lyxor MSCI

Very good diversification

The 3 months correlation between IShares and Lyxor is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI World and Lyxor MSCI Emerging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lyxor MSCI Emerging 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 World are associated (or correlated) with Lyxor MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lyxor MSCI Emerging has no effect on the direction of IShares MSCI i.e., IShares MSCI and Lyxor MSCI go up and down completely randomly.

Pair Corralation between IShares MSCI and Lyxor MSCI

Assuming the 90 days trading horizon iShares MSCI World is expected to under-perform the Lyxor MSCI. But the etf apears to be less risky and, when comparing its historical volatility, iShares MSCI World is 1.96 times less risky than Lyxor MSCI. The etf trades about -0.03 of its potential returns per unit of risk. The Lyxor MSCI Emerging is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,400  in Lyxor MSCI Emerging on December 2, 2024 and sell it today you would lose (10.00) from holding Lyxor MSCI Emerging or give up 0.71% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	41.67%
Values	Daily Returns

iShares MSCI World  vs.  Lyxor MSCI Emerging

iShares MSCI World

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares MSCI World has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, IShares MSCI is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Lyxor MSCI Emerging

Risk-Adjusted Performance

Very Weak

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

Pair Trading with IShares MSCI and Lyxor MSCI

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

The idea behind iShares MSCI World and Lyxor MSCI Emerging 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.