Correlation Between IShares Equity and IShares MSCI

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

Diversification Opportunities for IShares Equity and IShares MSCI

0.97

Correlation Coefficient

IShares Equity  IShares MSCI

Almost no diversification

The 3 months correlation between IShares and IShares is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding iShares Equity Factor and iShares MSCI USA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI USA 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 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 USA has no effect on the direction of IShares Equity i.e., IShares Equity and IShares MSCI go up and down completely randomly.

Pair Corralation between IShares Equity and IShares MSCI

Given the investment horizon of 90 days IShares Equity is expected to generate 1.47 times less return on investment than IShares MSCI. But when comparing it to its historical volatility, iShares Equity Factor is 1.46 times less risky than IShares MSCI. It trades about 0.23 of its potential returns per unit of risk. iShares MSCI USA is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  6,326  in iShares MSCI USA on September 2, 2024 and sell it today you would earn a total of  1,042  from holding iShares MSCI USA or generate 16.47% return on investment over 90 days.

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

iShares Equity Factor  vs.  iShares MSCI USA

iShares Equity Factor

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Equity Factor are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, IShares Equity may actually be approaching a critical reversion point that can send shares even higher in January 2025.

iShares MSCI USA

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI USA are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, IShares MSCI reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares Equity and IShares MSCI

The main advantage of trading using opposite IShares Equity and IShares MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Equity 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 iShares Equity Factor and iShares MSCI USA 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.