Correlation Between IShares MSCI and SEI Exchange

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

Diversification Opportunities for IShares MSCI and SEI Exchange

0.88

Correlation Coefficient

IShares MSCI  SEI Exchange

Very poor diversification

The 3 months correlation between IShares and SEI is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI USA and SEI Exchange Traded in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SEI Exchange Traded 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 SEI Exchange. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SEI Exchange Traded has no effect on the direction of IShares MSCI i.e., IShares MSCI and SEI Exchange go up and down completely randomly.

Pair Corralation between IShares MSCI and SEI Exchange

Given the investment horizon of 90 days iShares MSCI USA is expected to generate 1.64 times more return on investment than SEI Exchange. However, IShares MSCI is 1.64 times more volatile than SEI Exchange Traded. It trades about -0.16 of its potential returns per unit of risk. SEI Exchange Traded is currently generating about -0.35 per unit of risk. If you would invest  21,591  in iShares MSCI USA on October 5, 2024 and sell it today you would lose (899.00) from holding iShares MSCI USA or give up 4.16% of portfolio value over 90 days.

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

iShares MSCI USA  vs.  SEI Exchange Traded

iShares MSCI USA

Risk-Adjusted Performance

3 of 100

Weak

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.

SEI Exchange Traded

Risk-Adjusted Performance

4 of 100

Insignificant

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

Pair Trading with IShares MSCI and SEI Exchange

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

The idea behind iShares MSCI USA and SEI Exchange Traded 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.