Correlation Between IShares MSCI and IShares SP

Can any of the company-specific risk be diversified away by investing in both IShares MSCI and IShares SP 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 IShares SP 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 iShares SP 500, you can compare the effects of market volatilities on IShares MSCI and IShares SP 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 IShares SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and IShares SP.

Diversification Opportunities for IShares MSCI and IShares SP

1.0

Correlation Coefficient

IShares MSCI  IShares SP

No risk reduction

The 3 months correlation between IShares and IShares is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI World and iShares SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SP 500 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 IShares SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares SP 500 has no effect on the direction of IShares MSCI i.e., IShares MSCI and IShares SP go up and down completely randomly.

Pair Corralation between IShares MSCI and IShares SP

Assuming the 90 days trading horizon IShares MSCI is expected to generate 1.22 times less return on investment than IShares SP. But when comparing it to its historical volatility, iShares MSCI World is 1.16 times less risky than IShares SP. It trades about 0.25 of its potential returns per unit of risk. iShares SP 500 is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  5,009  in iShares SP 500 on September 16, 2024 and sell it today you would earn a total of  724.00  from holding iShares SP 500 or generate 14.45% return on investment over 90 days.

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

iShares MSCI World  vs.  iShares SP 500

iShares MSCI World

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI World are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, IShares MSCI may actually be approaching a critical reversion point that can send shares even higher in January 2025.

iShares SP 500

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SP 500 are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, IShares SP unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares MSCI and IShares SP

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

The idea behind iShares MSCI World and iShares SP 500 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.