Correlation Between IShares Core and IShares Flexible

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

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

Diversification Opportunities for IShares Core and IShares Flexible

0.75

Correlation Coefficient

IShares Core  IShares Flexible

Poor diversification

The 3 months correlation between IShares and IShares is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core MSCI and iShares Flexible Monthly in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Flexible Monthly and IShares Core 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 Core MSCI are associated (or correlated) with IShares Flexible. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Flexible Monthly has no effect on the direction of IShares Core i.e., IShares Core and IShares Flexible go up and down completely randomly.

Pair Corralation between IShares Core and IShares Flexible

Assuming the 90 days trading horizon iShares Core MSCI is expected to generate 4.88 times more return on investment than IShares Flexible. However, IShares Core is 4.88 times more volatile than iShares Flexible Monthly. It trades about 0.05 of its potential returns per unit of risk. iShares Flexible Monthly is currently generating about 0.08 per unit of risk. If you would invest  2,918  in iShares Core MSCI on December 30, 2024 and sell it today you would earn a total of  81.00  from holding iShares Core MSCI or generate 2.78% return on investment over 90 days.

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

iShares Core MSCI  vs.  iShares Flexible Monthly

iShares Core MSCI

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core MSCI are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, IShares Core is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

iShares Flexible Monthly

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Flexible Monthly are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, IShares Flexible is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with IShares Core and IShares Flexible

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

The idea behind iShares Core MSCI and iShares Flexible Monthly 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.