Correlation Between IShares MSCI and Virtus ETF

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

Diversification Opportunities for IShares MSCI and Virtus ETF

0.95

Correlation Coefficient

IShares MSCI  Virtus ETF

Almost no diversification

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

Pair Corralation between IShares MSCI and Virtus ETF

Given the investment horizon of 90 days IShares MSCI is expected to generate 1.82 times less return on investment than Virtus ETF. But when comparing it to its historical volatility, iShares MSCI USA is 1.09 times less risky than Virtus ETF. It trades about 0.18 of its potential returns per unit of risk. Virtus ETF Trust is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  3,477  in Virtus ETF Trust on September 5, 2024 and sell it today you would earn a total of  582.00  from holding Virtus ETF Trust or generate 16.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

iShares MSCI USA  vs.  Virtus ETF Trust

iShares MSCI USA

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI USA are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting basic indicators, IShares MSCI may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Virtus ETF Trust

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Virtus ETF Trust are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting technical and fundamental indicators, Virtus ETF unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares MSCI and Virtus ETF

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

The idea behind iShares MSCI USA and Virtus ETF Trust 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.