Correlation Between IShares MSCI and Innovator

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

By analyzing existing cross correlation between iShares MSCI China and Innovator SP 500, you can compare the effects of market volatilities on IShares MSCI and Innovator 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 Innovator. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and Innovator.

Diversification Opportunities for IShares MSCI and Innovator

-0.56

Correlation Coefficient

IShares MSCI  Innovator

Excellent diversification

The 3 months correlation between IShares and Innovator is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI China and Innovator SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovator 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 China are associated (or correlated) with Innovator. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovator SP 500 has no effect on the direction of IShares MSCI i.e., IShares MSCI and Innovator go up and down completely randomly.

Pair Corralation between IShares MSCI and Innovator

Given the investment horizon of 90 days IShares MSCI is expected to generate 7.25 times less return on investment than Innovator. In addition to that, IShares MSCI is 3.32 times more volatile than Innovator SP 500. It trades about 0.01 of its total potential returns per unit of risk. Innovator SP 500 is currently generating about 0.14 per unit of volatility. If you would invest  3,289  in Innovator SP 500 on September 26, 2024 and sell it today you would earn a total of  1,495  from holding Innovator SP 500 or generate 45.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

iShares MSCI China  vs.  Innovator SP 500

iShares MSCI China

Risk-Adjusted Performance

0 of 100

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 fairly strong technical indicators, IShares MSCI is not utilizing all of its potentials. The new stock price confusion, may contribute to short-horizon losses for the traders.

Innovator SP 500

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Innovator SP 500 are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Innovator is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with IShares MSCI and Innovator

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

The idea behind iShares MSCI China and Innovator 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.