Correlation Between IShares MSCI and IShares Micro

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

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

Diversification Opportunities for IShares MSCI and IShares Micro

-0.61

Correlation Coefficient

IShares MSCI  IShares Micro

Excellent diversification

The 3 months correlation between IShares and IShares is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI EAFE and iShares Micro Cap ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Micro Cap 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 EAFE are associated (or correlated) with IShares Micro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Micro Cap has no effect on the direction of IShares MSCI i.e., IShares MSCI and IShares Micro go up and down completely randomly.

Pair Corralation between IShares MSCI and IShares Micro

Considering the 90-day investment horizon iShares MSCI EAFE is expected to generate 0.59 times more return on investment than IShares Micro. However, iShares MSCI EAFE is 1.69 times less risky than IShares Micro. It trades about 0.13 of its potential returns per unit of risk. iShares Micro Cap ETF is currently generating about -0.13 per unit of risk. If you would invest  6,085  in iShares MSCI EAFE on December 29, 2024 and sell it today you would earn a total of  405.00  from holding iShares MSCI EAFE or generate 6.66% return on investment over 90 days.

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

iShares MSCI EAFE  vs.  iShares Micro Cap ETF

iShares MSCI EAFE

Risk-Adjusted Performance

OK

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

iShares Micro Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Micro Cap ETF has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Etf's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the fund shareholders.

Pair Trading with IShares MSCI and IShares Micro

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

The idea behind iShares MSCI EAFE and iShares Micro Cap ETF 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.