Correlation Between IShares MSCI and KraneShares MSCI

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

Diversification Opportunities for IShares MSCI and KraneShares MSCI

0.95

Correlation Coefficient

IShares MSCI  KraneShares MSCI

Almost no diversification

The 3 months correlation between IShares and KraneShares is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI China and KraneShares MSCI One in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KraneShares MSCI One 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 KraneShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KraneShares MSCI One has no effect on the direction of IShares MSCI i.e., IShares MSCI and KraneShares MSCI go up and down completely randomly.

Pair Corralation between IShares MSCI and KraneShares MSCI

Given the investment horizon of 90 days iShares MSCI China is expected to under-perform the KraneShares MSCI. In addition to that, IShares MSCI is 2.73 times more volatile than KraneShares MSCI One. It trades about -0.02 of its total potential returns per unit of risk. KraneShares MSCI One is currently generating about -0.02 per unit of volatility. If you would invest  2,254  in KraneShares MSCI One on September 12, 2024 and sell it today you would lose (10.50) from holding KraneShares MSCI One or give up 0.47% of portfolio value over 90 days.

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

iShares MSCI China  vs.  KraneShares MSCI One

iShares MSCI China

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI China are ranked lower than 8 (%) 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.

KraneShares MSCI One

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in KraneShares MSCI One are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, KraneShares MSCI is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with IShares MSCI and KraneShares MSCI

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

The idea behind iShares MSCI China and KraneShares MSCI One 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.