Correlation Between IShares Equity and IShares Edge

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

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

Diversification Opportunities for IShares Equity and IShares Edge

-0.33

Correlation Coefficient

IShares Equity  IShares Edge

Very good diversification

The 3 months correlation between IShares and IShares is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding iShares Equity Factor and iShares Edge MSCI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Edge MSCI and IShares Equity 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 Equity Factor are associated (or correlated) with IShares Edge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Edge MSCI has no effect on the direction of IShares Equity i.e., IShares Equity and IShares Edge go up and down completely randomly.

Pair Corralation between IShares Equity and IShares Edge

Given the investment horizon of 90 days iShares Equity Factor is expected to under-perform the IShares Edge. In addition to that, IShares Equity is 1.23 times more volatile than iShares Edge MSCI. It trades about -0.07 of its total potential returns per unit of risk. iShares Edge MSCI is currently generating about 0.15 per unit of volatility. If you would invest  2,876  in iShares Edge MSCI on December 29, 2024 and sell it today you would earn a total of  234.00  from holding iShares Edge MSCI or generate 8.14% return on investment over 90 days.

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

iShares Equity Factor  vs.  iShares Edge MSCI

iShares Equity Factor

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Equity Factor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, IShares Equity is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

iShares Edge MSCI

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Edge MSCI are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, IShares Edge may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with IShares Equity and IShares Edge

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

The idea behind iShares Equity Factor and iShares Edge MSCI 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.

Check out your portfolio center.

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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.