Correlation Between IShares MSCI and WBI Power

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

Diversification Opportunities for IShares MSCI and WBI Power

0.08

Correlation Coefficient

IShares MSCI  WBI Power

Significant diversification

The 3 months correlation between IShares and WBI is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI China and WBI Power Factor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WBI Power Factor 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 WBI Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WBI Power Factor has no effect on the direction of IShares MSCI i.e., IShares MSCI and WBI Power go up and down completely randomly.

Pair Corralation between IShares MSCI and WBI Power

Given the investment horizon of 90 days iShares MSCI China is expected to generate 1.66 times more return on investment than WBI Power. However, IShares MSCI is 1.66 times more volatile than WBI Power Factor. It trades about 0.15 of its potential returns per unit of risk. WBI Power Factor is currently generating about 0.01 per unit of risk. If you would invest  4,747  in iShares MSCI China on December 27, 2024 and sell it today you would earn a total of  753.00  from holding iShares MSCI China or generate 15.86% 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.  WBI Power Factor

iShares MSCI China

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI China are ranked lower than 11 (%) 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.

WBI Power Factor

Risk-Adjusted Performance

Very Weak

Over the last 90 days WBI Power Factor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward indicators, WBI Power is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares MSCI and WBI Power

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

The idea behind iShares MSCI China and WBI Power Factor 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.