Correlation Between IShares MSCI and Main Sector

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

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

Diversification Opportunities for IShares MSCI and Main Sector

0.8

Correlation Coefficient

IShares MSCI  Main Sector

Very poor diversification

The 3 months correlation between IShares and Main is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI USA and Main Sector Rotation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Main Sector Rotation 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 USA are associated (or correlated) with Main Sector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Main Sector Rotation has no effect on the direction of IShares MSCI i.e., IShares MSCI and Main Sector go up and down completely randomly.

Pair Corralation between IShares MSCI and Main Sector

Given the investment horizon of 90 days iShares MSCI USA is expected to generate 0.6 times more return on investment than Main Sector. However, iShares MSCI USA is 1.67 times less risky than Main Sector. It trades about 0.0 of its potential returns per unit of risk. Main Sector Rotation is currently generating about -0.08 per unit of risk. If you would invest  4,167  in iShares MSCI USA on December 25, 2024 and sell it today you would lose (13.00) from holding iShares MSCI USA or give up 0.31% of portfolio value over 90 days.

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

iShares MSCI USA  vs.  Main Sector Rotation

iShares MSCI USA

Risk-Adjusted Performance

Very Weak

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

Main Sector Rotation

Risk-Adjusted Performance

Very Weak

Over the last 90 days Main Sector Rotation has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, Main Sector is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with IShares MSCI and Main Sector

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

The idea behind iShares MSCI USA and Main Sector Rotation 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.