Correlation Between IShares MSCI and Innovator IBD

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

By analyzing existing cross correlation between iShares MSCI USA and Innovator IBD 50, you can compare the effects of market volatilities on IShares MSCI and Innovator IBD 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 Innovator IBD. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and Innovator IBD.

Diversification Opportunities for IShares MSCI and Innovator IBD

0.75

Correlation Coefficient

IShares MSCI  Innovator IBD

Poor diversification

The 3 months correlation between IShares and Innovator is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI USA and Innovator IBD 50 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovator IBD 50 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 USA are associated (or correlated) with Innovator IBD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovator IBD 50 has no effect on the direction of IShares MSCI i.e., IShares MSCI and Innovator IBD go up and down completely randomly.

Pair Corralation between IShares MSCI and Innovator IBD

Given the investment horizon of 90 days iShares MSCI USA is expected to generate 0.73 times more return on investment than Innovator IBD. However, iShares MSCI USA is 1.37 times less risky than Innovator IBD. It trades about 0.1 of its potential returns per unit of risk. Innovator IBD 50 is currently generating about 0.05 per unit of risk. If you would invest  14,486  in iShares MSCI USA on October 4, 2024 and sell it today you would earn a total of  6,206  from holding iShares MSCI USA or generate 42.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.7%
Values	Daily Returns

iShares MSCI USA  vs.  Innovator IBD 50

iShares MSCI USA

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI USA are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, IShares MSCI is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Innovator IBD 50

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Innovator IBD 50 are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Innovator IBD may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with IShares MSCI and Innovator IBD

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

The idea behind iShares MSCI USA and Innovator IBD 50 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.