Correlation Between IShares MSCI and VanEck Morningstar

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

Diversification Opportunities for IShares MSCI and VanEck Morningstar

0.4

Correlation Coefficient

IShares MSCI  VanEck Morningstar

Very weak diversification

The 3 months correlation between IShares and VanEck is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI USA and VanEck Morningstar Wide in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck Morningstar Wide 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 VanEck Morningstar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck Morningstar Wide has no effect on the direction of IShares MSCI i.e., IShares MSCI and VanEck Morningstar go up and down completely randomly.

Pair Corralation between IShares MSCI and VanEck Morningstar

Given the investment horizon of 90 days iShares MSCI USA is expected to generate 1.11 times more return on investment than VanEck Morningstar. However, IShares MSCI is 1.11 times more volatile than VanEck Morningstar Wide. It trades about -0.05 of its potential returns per unit of risk. VanEck Morningstar Wide is currently generating about -0.11 per unit of risk. If you would invest  11,378  in iShares MSCI USA on November 28, 2024 and sell it today you would lose (258.00) from holding iShares MSCI USA or give up 2.27% of portfolio value over 90 days.

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

iShares MSCI USA  vs.  VanEck Morningstar Wide

iShares MSCI USA

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares MSCI USA has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

VanEck Morningstar Wide

Risk-Adjusted Performance

Very Weak

Over the last 90 days VanEck Morningstar Wide has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, VanEck Morningstar is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with IShares MSCI and VanEck Morningstar

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

The idea behind iShares MSCI USA and VanEck Morningstar Wide 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.