Correlation Between IShares MSCI and Xtrackers

Can any of the company-specific risk be diversified away by investing in both IShares MSCI and Xtrackers 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 Xtrackers 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 Xtrackers SP 500, you can compare the effects of market volatilities on IShares MSCI and Xtrackers 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 Xtrackers. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and Xtrackers.

Diversification Opportunities for IShares MSCI and Xtrackers

0.99

Correlation Coefficient

IShares MSCI  Xtrackers

No risk reduction

The 3 months correlation between IShares and Xtrackers is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI USA and Xtrackers SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers SP 500 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 Xtrackers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers SP 500 has no effect on the direction of IShares MSCI i.e., IShares MSCI and Xtrackers go up and down completely randomly.

Pair Corralation between IShares MSCI and Xtrackers

Given the investment horizon of 90 days iShares MSCI USA is expected to under-perform the Xtrackers. But the etf apears to be less risky and, when comparing its historical volatility, iShares MSCI USA is 1.05 times less risky than Xtrackers. The etf trades about -0.1 of its potential returns per unit of risk. The Xtrackers SP 500 is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  5,336  in Xtrackers SP 500 on December 30, 2024 and sell it today you would lose (330.00) from holding Xtrackers SP 500 or give up 6.18% of portfolio value over 90 days.

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

iShares MSCI USA  vs.  Xtrackers SP 500

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. Despite somewhat strong basic indicators, IShares MSCI is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Xtrackers SP 500

Risk-Adjusted Performance

Very Weak

Over the last 90 days Xtrackers SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Xtrackers is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with IShares MSCI and Xtrackers

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

The idea behind iShares MSCI USA and Xtrackers SP 500 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.