Correlation Between ETFS Morningstar and ISharesGlobal 100

Can any of the company-specific risk be diversified away by investing in both ETFS Morningstar and ISharesGlobal 100 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 ISharesGlobal 100 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 iSharesGlobal 100, you can compare the effects of market volatilities on ETFS Morningstar and ISharesGlobal 100 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 ISharesGlobal 100. Check out your portfolio center. Please also check ongoing floating volatility patterns of ETFS Morningstar and ISharesGlobal 100.

Diversification Opportunities for ETFS Morningstar and ISharesGlobal 100

0.95

Correlation Coefficient

ETFS Morningstar  ISharesGlobal 100

Almost no diversification

The 3 months correlation between ETFS and ISharesGlobal is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding ETFS Morningstar Global and iSharesGlobal 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iSharesGlobal 100 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 ISharesGlobal 100. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iSharesGlobal 100 has no effect on the direction of ETFS Morningstar i.e., ETFS Morningstar and ISharesGlobal 100 go up and down completely randomly.

Pair Corralation between ETFS Morningstar and ISharesGlobal 100

Assuming the 90 days trading horizon ETFS Morningstar Global is expected to generate 1.49 times more return on investment than ISharesGlobal 100. However, ETFS Morningstar is 1.49 times more volatile than iSharesGlobal 100. It trades about 0.26 of its potential returns per unit of risk. iSharesGlobal 100 is currently generating about 0.25 per unit of risk. If you would invest  10,196  in ETFS Morningstar Global on September 13, 2024 and sell it today you would earn a total of  1,379  from holding ETFS Morningstar Global or generate 13.52% return on investment over 90 days.

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

ETFS Morningstar Global  vs.  iSharesGlobal 100

ETFS Morningstar Global

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ETFS Morningstar Global are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, ETFS Morningstar unveiled solid returns over the last few months and may actually be approaching a breakup point.

iSharesGlobal 100

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iSharesGlobal 100 are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, ISharesGlobal 100 may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with ETFS Morningstar and ISharesGlobal 100

The main advantage of trading using opposite ETFS Morningstar and ISharesGlobal 100 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ETFS Morningstar position performs unexpectedly, ISharesGlobal 100 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 ISharesGlobal 100 will offset losses from the drop in ISharesGlobal 100's long position.

The idea behind ETFS Morningstar Global and iSharesGlobal 100 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.