Correlation Between IShares China and IShares MSCI

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

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

Diversification Opportunities for IShares China and IShares MSCI

0.96

Correlation Coefficient

IShares China  IShares MSCI

Almost no diversification

The 3 months correlation between IShares and IShares is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding iShares China and iShares MSCI Europe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI Europe and IShares China 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 China are associated (or correlated) with IShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MSCI Europe has no effect on the direction of IShares China i.e., IShares China and IShares MSCI go up and down completely randomly.

Pair Corralation between IShares China and IShares MSCI

Assuming the 90 days trading horizon iShares China is expected to generate 1.97 times more return on investment than IShares MSCI. However, IShares China is 1.97 times more volatile than iShares MSCI Europe. It trades about 0.16 of its potential returns per unit of risk. iShares MSCI Europe is currently generating about 0.21 per unit of risk. If you would invest  2,082  in iShares China on December 30, 2024 and sell it today you would earn a total of  354.00  from holding iShares China or generate 17.0% return on investment over 90 days.

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

iShares China  vs.  iShares MSCI Europe

iShares China

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares China are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical indicators, IShares China displayed solid returns over the last few months and may actually be approaching a breakup point.

iShares MSCI Europe

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI Europe are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, IShares MSCI may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with IShares China and IShares MSCI

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

The idea behind iShares China and iShares MSCI Europe 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.