Correlation Between IShares Edge and IShares Developed

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Can any of the company-specific risk be diversified away by investing in both IShares Edge and IShares Developed 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 Edge and IShares Developed into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares Edge MSCI and iShares Developed Markets, you can compare the effects of market volatilities on IShares Edge and IShares Developed 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 Edge with a short position of IShares Developed. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Edge and IShares Developed.

Diversification Opportunities for IShares Edge and IShares Developed

0.12
  Correlation Coefficient

Average diversification

The 3 months correlation between IShares and IShares is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding iShares Edge MSCI and iShares Developed Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Developed Markets and IShares Edge 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 Edge MSCI are associated (or correlated) with IShares Developed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Developed Markets has no effect on the direction of IShares Edge i.e., IShares Edge and IShares Developed go up and down completely randomly.

Pair Corralation between IShares Edge and IShares Developed

Assuming the 90 days trading horizon iShares Edge MSCI is expected to generate 0.73 times more return on investment than IShares Developed. However, iShares Edge MSCI is 1.36 times less risky than IShares Developed. It trades about 0.06 of its potential returns per unit of risk. iShares Developed Markets is currently generating about 0.02 per unit of risk. If you would invest  11,756  in iShares Edge MSCI on October 23, 2024 and sell it today you would earn a total of  2,548  from holding iShares Edge MSCI or generate 21.67% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

iShares Edge MSCI  vs.  iShares Developed Markets

 Performance 
       Timeline  
iShares Edge MSCI 

Risk-Adjusted Performance

1 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in iShares Edge MSCI are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, IShares Edge is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.
iShares Developed Markets 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days iShares Developed Markets has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, IShares Developed is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

IShares Edge and IShares Developed Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with IShares Edge and IShares Developed

The main advantage of trading using opposite IShares Edge and IShares Developed positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Edge position performs unexpectedly, IShares Developed 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 Developed will offset losses from the drop in IShares Developed's long position.
The idea behind iShares Edge MSCI and iShares Developed Markets 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.

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