Correlation Between IShares MSCI and Sterling Capital

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

Diversification Opportunities for IShares MSCI and Sterling Capital

0.9

Correlation Coefficient

IShares MSCI  Sterling Capital

Almost no diversification

The 3 months correlation between IShares and Sterling is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI USA and Sterling Capital Focus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sterling Capital Focus 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 Sterling Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sterling Capital Focus has no effect on the direction of IShares MSCI i.e., IShares MSCI and Sterling Capital go up and down completely randomly.

Pair Corralation between IShares MSCI and Sterling Capital

Given the investment horizon of 90 days IShares MSCI is expected to generate 1.54 times less return on investment than Sterling Capital. But when comparing it to its historical volatility, iShares MSCI USA is 1.46 times less risky than Sterling Capital. It trades about 0.17 of its potential returns per unit of risk. Sterling Capital Focus is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  2,766  in Sterling Capital Focus on September 1, 2024 and sell it today you would earn a total of  374.00  from holding Sterling Capital Focus 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

iShares MSCI USA  vs.  Sterling Capital Focus

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 December 2024.

Sterling Capital Focus

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sterling Capital Focus are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, Sterling Capital reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares MSCI and Sterling Capital

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

The idea behind iShares MSCI USA and Sterling Capital Focus 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.

Check out your portfolio center.

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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.