Correlation Between IShares MSCI and Goldman Sachs

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

Diversification Opportunities for IShares MSCI and Goldman Sachs

0.66

Correlation Coefficient

IShares MSCI  Goldman Sachs

Poor diversification

The 3 months correlation between IShares and Goldman is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI Global and Goldman Sachs ActiveBeta in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goldman Sachs ActiveBeta 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 Goldman Sachs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Goldman Sachs ActiveBeta has no effect on the direction of IShares MSCI i.e., IShares MSCI and Goldman Sachs go up and down completely randomly.

Pair Corralation between IShares MSCI and Goldman Sachs

Considering the 90-day investment horizon IShares MSCI is expected to generate 1.05 times less return on investment than Goldman Sachs. In addition to that, IShares MSCI is 1.35 times more volatile than Goldman Sachs ActiveBeta. It trades about 0.06 of its total potential returns per unit of risk. Goldman Sachs ActiveBeta is currently generating about 0.08 per unit of volatility. If you would invest  4,977  in Goldman Sachs ActiveBeta on December 21, 2024 and sell it today you would earn a total of  160.00  from holding Goldman Sachs ActiveBeta or generate 3.21% return on investment over 90 days.

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

iShares MSCI Global  vs.  Goldman Sachs ActiveBeta

iShares MSCI Global

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI Global are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, IShares MSCI is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Goldman Sachs ActiveBeta

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Goldman Sachs ActiveBeta are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Goldman Sachs is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with IShares MSCI and Goldman Sachs

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

The idea behind iShares MSCI Global and Goldman Sachs ActiveBeta 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.