Correlation Between IShares Developed and Lyxor MSCI

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

Diversification Opportunities for IShares Developed and Lyxor MSCI

0.14

Correlation Coefficient

IShares Developed  Lyxor MSCI

Average diversification

The 3 months correlation between IShares and Lyxor is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding iShares Developed Markets and Lyxor MSCI China in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lyxor MSCI China and IShares Developed 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 Developed Markets 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 China has no effect on the direction of IShares Developed i.e., IShares Developed and Lyxor MSCI go up and down completely randomly.

Pair Corralation between IShares Developed and Lyxor MSCI

Assuming the 90 days trading horizon IShares Developed is expected to generate 1.9 times less return on investment than Lyxor MSCI. But when comparing it to its historical volatility, iShares Developed Markets is 1.7 times less risky than Lyxor MSCI. It trades about 0.04 of its potential returns per unit of risk. Lyxor MSCI China is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,382  in Lyxor MSCI China on December 2, 2024 and sell it today you would earn a total of  414.00  from holding Lyxor MSCI China or generate 29.96% return on investment over 90 days.

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

iShares Developed Markets  vs.  Lyxor MSCI China

iShares Developed Markets

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Developed Markets has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, IShares Developed 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 China

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lyxor MSCI China are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Lyxor MSCI showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares Developed and Lyxor MSCI

The main advantage of trading using opposite IShares Developed and Lyxor MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Developed 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 Developed Markets and Lyxor MSCI China 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.