Correlation Between IShares MSCI and Capital Group

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

Diversification Opportunities for IShares MSCI and Capital Group

0.05

Correlation Coefficient

IShares MSCI  Capital Group

Significant diversification

The 3 months correlation between IShares and Capital is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI China and Capital Group Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Group Core 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 Capital Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Group Core has no effect on the direction of IShares MSCI i.e., IShares MSCI and Capital Group go up and down completely randomly.

Pair Corralation between IShares MSCI and Capital Group

Given the investment horizon of 90 days iShares MSCI China is expected to generate 2.61 times more return on investment than Capital Group. However, IShares MSCI is 2.61 times more volatile than Capital Group Core. It trades about 0.18 of its potential returns per unit of risk. Capital Group Core is currently generating about 0.0 per unit of risk. If you would invest  4,729  in iShares MSCI China on December 21, 2024 and sell it today you would earn a total of  940.00  from holding iShares MSCI China or generate 19.88% return on investment over 90 days.

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

iShares MSCI China  vs.  Capital Group Core

iShares MSCI China

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI China are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak technical indicators, IShares MSCI demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Capital Group Core

Risk-Adjusted Performance

Very Weak

Over the last 90 days Capital Group Core has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental drivers, Capital Group is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with IShares MSCI and Capital Group

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

The idea behind iShares MSCI China and Capital Group Core 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.