Correlation Between ETFS Morningstar and IShares Asia

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

By analyzing existing cross correlation between ETFS Morningstar Global and iShares Asia 50, you can compare the effects of market volatilities on ETFS Morningstar 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 ETFS Morningstar with a short position of IShares Asia. Check out your portfolio center. Please also check ongoing floating volatility patterns of ETFS Morningstar and IShares Asia.

Diversification Opportunities for ETFS Morningstar and IShares Asia

0.79

Correlation Coefficient

ETFS Morningstar  IShares Asia

Poor diversification

The 3 months correlation between ETFS and IShares is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding ETFS Morningstar Global and iShares Asia 50 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Asia 50 and ETFS Morningstar 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 ETFS Morningstar 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 50 has no effect on the direction of ETFS Morningstar i.e., ETFS Morningstar and IShares Asia go up and down completely randomly.

Pair Corralation between ETFS Morningstar and IShares Asia

Assuming the 90 days trading horizon ETFS Morningstar is expected to generate 3.24 times less return on investment than IShares Asia. But when comparing it to its historical volatility, ETFS Morningstar Global is 1.28 times less risky than IShares Asia. It trades about 0.06 of its potential returns per unit of risk. iShares Asia 50 is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  10,886  in iShares Asia 50 on December 2, 2024 and sell it today you would earn a total of  877.00  from holding iShares Asia 50 or generate 8.06% return on investment over 90 days.

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

ETFS Morningstar Global  vs.  iShares Asia 50

ETFS Morningstar Global

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ETFS Morningstar Global are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, ETFS Morningstar is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

iShares Asia 50

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Asia 50 are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, IShares Asia unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ETFS Morningstar and IShares Asia

The main advantage of trading using opposite ETFS Morningstar and IShares Asia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ETFS Morningstar 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 ETFS Morningstar Global and iShares Asia 50 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.