Correlation Between KraneShares MSCI and IShares MSCI

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

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

Diversification Opportunities for KraneShares MSCI and IShares MSCI

0.89

Correlation Coefficient

KraneShares MSCI  IShares MSCI

Very poor diversification

The 3 months correlation between KraneShares and IShares is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding KraneShares MSCI All and iShares MSCI China in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI China and KraneShares 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 KraneShares MSCI All are associated (or correlated) with IShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MSCI China has no effect on the direction of KraneShares MSCI i.e., KraneShares MSCI and IShares MSCI go up and down completely randomly.

Pair Corralation between KraneShares MSCI and IShares MSCI

Given the investment horizon of 90 days KraneShares MSCI All is expected to generate 1.46 times more return on investment than IShares MSCI. However, KraneShares MSCI is 1.46 times more volatile than iShares MSCI China. It trades about 0.09 of its potential returns per unit of risk. iShares MSCI China is currently generating about 0.0 per unit of risk. If you would invest  1,434  in KraneShares MSCI All on December 28, 2024 and sell it today you would earn a total of  129.00  from holding KraneShares MSCI All or generate 9.0% return on investment over 90 days.

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

KraneShares MSCI All  vs.  iShares MSCI China

KraneShares MSCI All

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in KraneShares MSCI All are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, KraneShares MSCI may actually be approaching a critical reversion point that can send shares even higher in April 2025.

iShares MSCI China

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares MSCI China has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, IShares MSCI is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with KraneShares MSCI and IShares MSCI

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

The idea behind KraneShares MSCI All and iShares 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.