Correlation Between IShares MSCI and IShares Morningstar

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

Diversification Opportunities for IShares MSCI and IShares Morningstar

-0.6

Correlation Coefficient

IShares MSCI  IShares Morningstar

Excellent diversification

The 3 months correlation between IShares and IShares is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI China and iShares Morningstar Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Morningstar 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 IShares Morningstar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Morningstar has no effect on the direction of IShares MSCI i.e., IShares MSCI and IShares Morningstar go up and down completely randomly.

Pair Corralation between IShares MSCI and IShares Morningstar

Given the investment horizon of 90 days iShares MSCI China is expected to under-perform the IShares Morningstar. But the etf apears to be less risky and, when comparing its historical volatility, iShares MSCI China is 1.17 times less risky than IShares Morningstar. The etf trades about -0.41 of its potential returns per unit of risk. The iShares Morningstar Growth is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  9,276  in iShares Morningstar Growth on October 13, 2024 and sell it today you would lose (217.00) from holding iShares Morningstar Growth or give up 2.34% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.0%
Values	Daily Returns

iShares MSCI China  vs.  iShares Morningstar Growth

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 weak performance in the last few months, the Etf's technical indicators remain fairly strong which may send shares a bit higher in February 2025. The recent confusion may also be a sign of long-lasting up-swing for the Etf traders.

iShares Morningstar

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Morningstar Growth are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound forward-looking signals, IShares Morningstar is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with IShares MSCI and IShares Morningstar

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

The idea behind iShares MSCI China and iShares Morningstar Growth 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.