Correlation Between IShares MSCI and USCF Gold

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

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

Diversification Opportunities for IShares MSCI and USCF Gold

0.97

Correlation Coefficient

IShares MSCI  USCF Gold

Almost no diversification

The 3 months correlation between IShares and USCF is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI Global and USCF Gold Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on USCF Gold Strategy 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 Global are associated (or correlated) with USCF Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of USCF Gold Strategy has no effect on the direction of IShares MSCI i.e., IShares MSCI and USCF Gold go up and down completely randomly.

Pair Corralation between IShares MSCI and USCF Gold

Given the investment horizon of 90 days iShares MSCI Global is expected to generate 2.68 times more return on investment than USCF Gold. However, IShares MSCI is 2.68 times more volatile than USCF Gold Strategy. It trades about 0.29 of its potential returns per unit of risk. USCF Gold Strategy is currently generating about 0.36 per unit of risk. If you would invest  2,793  in iShares MSCI Global on December 28, 2024 and sell it today you would earn a total of  1,024  from holding iShares MSCI Global or generate 36.66% return on investment over 90 days.

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

iShares MSCI Global  vs.  USCF Gold Strategy

iShares MSCI Global

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI Global are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, IShares MSCI reported solid returns over the last few months and may actually be approaching a breakup point.

USCF Gold Strategy

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in USCF Gold Strategy are ranked lower than 28 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile fundamental indicators, USCF Gold showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares MSCI and USCF Gold

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

The idea behind iShares MSCI Global and USCF Gold Strategy 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.