Correlation Between IShares Broad and IShares Core

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

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

Diversification Opportunities for IShares Broad and IShares Core

0.87

Correlation Coefficient

IShares Broad  IShares Core

Very poor diversification

The 3 months correlation between IShares and IShares is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding iShares Broad USD and iShares Core MSCI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Core MSCI and IShares Broad 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 Broad USD are associated (or correlated) with IShares Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Core MSCI has no effect on the direction of IShares Broad i.e., IShares Broad and IShares Core go up and down completely randomly.

Pair Corralation between IShares Broad and IShares Core

Given the investment horizon of 90 days IShares Broad is expected to generate 4.05 times less return on investment than IShares Core. But when comparing it to its historical volatility, iShares Broad USD is 2.84 times less risky than IShares Core. It trades about 0.08 of its potential returns per unit of risk. iShares Core MSCI is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  6,614  in iShares Core MSCI on December 29, 2024 and sell it today you would earn a total of  414.00  from holding iShares Core MSCI or generate 6.26% return on investment over 90 days.

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

iShares Broad USD  vs.  iShares Core MSCI

iShares Broad USD

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Broad USD are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable forward indicators, IShares Broad is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

iShares Core MSCI

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core MSCI are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, IShares Core may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with IShares Broad and IShares Core

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

The idea behind iShares Broad USD and iShares Core MSCI 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.