Correlation Between IShares MSCI and IShares Asia

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

Diversification Opportunities for IShares MSCI and IShares Asia

0.08

Correlation Coefficient

IShares MSCI  IShares Asia

Significant diversification

The 3 months correlation between IShares and IShares is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI Global and iShares Asia Pacific in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Asia Pacific 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 Asia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Asia Pacific has no effect on the direction of IShares MSCI i.e., IShares MSCI and IShares Asia go up and down completely randomly.

Pair Corralation between IShares MSCI and IShares Asia

Assuming the 90 days trading horizon iShares MSCI Global is expected to under-perform the IShares Asia. In addition to that, IShares MSCI is 2.64 times more volatile than iShares Asia Pacific. It trades about -0.05 of its total potential returns per unit of risk. iShares Asia Pacific is currently generating about 0.0 per unit of volatility. If you would invest  2,254  in iShares Asia Pacific on December 24, 2024 and sell it today you would lose (3.00) from holding iShares Asia Pacific or give up 0.13% of portfolio value over 90 days.

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

iShares MSCI Global  vs.  iShares Asia Pacific

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 Asia Pacific

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Asia Pacific has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, IShares Asia is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with IShares MSCI and IShares Asia

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

The idea behind iShares MSCI Global and iShares Asia Pacific 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.