Correlation Between IShares MSCI and IShares Expanded

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

Diversification Opportunities for IShares MSCI and IShares Expanded

0.86

Correlation Coefficient

IShares MSCI  IShares Expanded

Very poor diversification

The 3 months correlation between IShares and IShares is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI USA and iShares Expanded Tech Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Expanded Tech 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 IShares Expanded. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Expanded Tech has no effect on the direction of IShares MSCI i.e., IShares MSCI and IShares Expanded go up and down completely randomly.

Pair Corralation between IShares MSCI and IShares Expanded

Given the investment horizon of 90 days IShares MSCI is expected to generate 5.16 times less return on investment than IShares Expanded. But when comparing it to its historical volatility, iShares MSCI USA is 1.52 times less risky than IShares Expanded. It trades about 0.04 of its potential returns per unit of risk. iShares Expanded Tech Software is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  8,990  in iShares Expanded Tech Software on October 4, 2024 and sell it today you would earn a total of  1,001  from holding iShares Expanded Tech Software or generate 11.13% return on investment over 90 days.

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

iShares MSCI USA  vs.  iShares Expanded Tech Software

iShares MSCI USA

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI USA are ranked lower than 2 (%) 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 current stock price disarray, may contribute to short-term losses for the investors.

iShares Expanded Tech

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Expanded Tech Software are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, IShares Expanded may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with IShares MSCI and IShares Expanded

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

The idea behind iShares MSCI USA and iShares Expanded Tech Software 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.