Correlation Between MSCI ACWI and Merrill Lynch

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

By analyzing existing cross correlation between MSCI ACWI exAUCONSUMER and Merrill Lynch Depositor, you can compare the effects of market volatilities on MSCI ACWI and Merrill Lynch 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 MSCI ACWI with a short position of Merrill Lynch. Check out your portfolio center. Please also check ongoing floating volatility patterns of MSCI ACWI and Merrill Lynch.

Diversification Opportunities for MSCI ACWI and Merrill Lynch

-0.65

Correlation Coefficient

MSCI ACWI  Merrill Lynch

Excellent diversification

The 3 months correlation between MSCI and Merrill is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding MSCI ACWI exAUCONSUMER and Merrill Lynch Depositor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merrill Lynch Depositor and MSCI ACWI 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 MSCI ACWI exAUCONSUMER are associated (or correlated) with Merrill Lynch. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merrill Lynch Depositor has no effect on the direction of MSCI ACWI i.e., MSCI ACWI and Merrill Lynch go up and down completely randomly.

Pair Corralation between MSCI ACWI and Merrill Lynch

Assuming the 90 days horizon MSCI ACWI is expected to generate 2.06 times less return on investment than Merrill Lynch. But when comparing it to its historical volatility, MSCI ACWI exAUCONSUMER is 5.48 times less risky than Merrill Lynch. It trades about 0.06 of its potential returns per unit of risk. Merrill Lynch Depositor is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2,227  in Merrill Lynch Depositor on September 20, 2024 and sell it today you would earn a total of  293.00  from holding Merrill Lynch Depositor or generate 13.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	93.55%
Values	Daily Returns

MSCI ACWI exAUCONSUMER  vs.  Merrill Lynch Depositor

MSCI ACWI exAUCONSUMER

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in MSCI ACWI exAUCONSUMER are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, MSCI ACWI is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Merrill Lynch Depositor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Merrill Lynch Depositor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Merrill Lynch is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with MSCI ACWI and Merrill Lynch

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

The idea behind MSCI ACWI exAUCONSUMER and Merrill Lynch Depositor 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 Global Correlations module to find global opportunities by holding instruments from different markets.