Correlation Between HSBC MSCI and IShares II

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

By analyzing existing cross correlation between HSBC MSCI Japan and iShares II Public, you can compare the effects of market volatilities on HSBC MSCI and IShares II 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 HSBC MSCI with a short position of IShares II. Check out your portfolio center. Please also check ongoing floating volatility patterns of HSBC MSCI and IShares II.

Diversification Opportunities for HSBC MSCI and IShares II

0.48

Correlation Coefficient

HSBC MSCI  IShares II

Very weak diversification

The 3 months correlation between HSBC and IShares is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding HSBC MSCI Japan and iShares II Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares II Public and HSBC 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 HSBC MSCI Japan are associated (or correlated) with IShares II. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares II Public has no effect on the direction of HSBC MSCI i.e., HSBC MSCI and IShares II go up and down completely randomly.

Pair Corralation between HSBC MSCI and IShares II

Assuming the 90 days trading horizon HSBC MSCI Japan is expected to under-perform the IShares II. In addition to that, HSBC MSCI is 1.03 times more volatile than iShares II Public. It trades about -0.01 of its total potential returns per unit of risk. iShares II Public is currently generating about 0.16 per unit of volatility. If you would invest  4,940  in iShares II Public on December 30, 2024 and sell it today you would earn a total of  482.00  from holding iShares II Public or generate 9.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.46%
Values	Daily Returns

HSBC MSCI Japan  vs.  iShares II Public

HSBC MSCI Japan

Risk-Adjusted Performance

Very Weak

Over the last 90 days HSBC MSCI Japan has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, HSBC MSCI is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

iShares II Public

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares II Public are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, IShares II may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with HSBC MSCI and IShares II

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

The idea behind HSBC MSCI Japan and iShares II Public 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.