Correlation Between IShares MSCI and IShares China

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

Diversification Opportunities for IShares MSCI and IShares China

-0.59

Correlation Coefficient

IShares MSCI  IShares China

Excellent diversification

The 3 months correlation between IShares and IShares is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI Global and iShares China Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares China Large 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 IShares China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares China Large has no effect on the direction of IShares MSCI i.e., IShares MSCI and IShares China go up and down completely randomly.

Pair Corralation between IShares MSCI and IShares China

Assuming the 90 days trading horizon iShares MSCI Global is expected to under-perform the IShares China. In addition to that, IShares MSCI is 1.19 times more volatile than iShares China Large. It trades about -0.07 of its total potential returns per unit of risk. iShares China Large is currently generating about 0.15 per unit of volatility. If you would invest  8,703  in iShares China Large on December 30, 2024 and sell it today you would earn a total of  1,533  from holding iShares China Large or generate 17.61% return on investment over 90 days.

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

iShares MSCI Global  vs.  iShares China Large

iShares MSCI Global

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares MSCI Global has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Etf's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the fund sophisticated investors.

iShares China Large

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares China Large are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal fundamental indicators, IShares China showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares MSCI and IShares China

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

The idea behind iShares MSCI Global and iShares China Large 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.