Correlation Between IShares MSCI and Pacer Cash

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

Diversification Opportunities for IShares MSCI and Pacer Cash

0.61

Correlation Coefficient

IShares MSCI  Pacer Cash

Poor diversification

The 3 months correlation between IShares and Pacer is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI USA and Pacer Cash Cows in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacer Cash Cows 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 Pacer Cash. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacer Cash Cows has no effect on the direction of IShares MSCI i.e., IShares MSCI and Pacer Cash go up and down completely randomly.

Pair Corralation between IShares MSCI and Pacer Cash

Given the investment horizon of 90 days iShares MSCI USA is expected to generate 0.99 times more return on investment than Pacer Cash. However, iShares MSCI USA is 1.01 times less risky than Pacer Cash. It trades about 0.07 of its potential returns per unit of risk. Pacer Cash Cows is currently generating about -0.02 per unit of risk. If you would invest  10,463  in iShares MSCI USA on December 28, 2024 and sell it today you would earn a total of  346.00  from holding iShares MSCI USA or generate 3.31% return on investment over 90 days.

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

iShares MSCI USA  vs.  Pacer Cash Cows

iShares MSCI USA

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI USA are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, IShares MSCI is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pacer Cash Cows

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pacer Cash Cows has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Pacer Cash is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares MSCI and Pacer Cash

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

The idea behind iShares MSCI USA and Pacer Cash Cows 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.