Correlation Between IShares MSCI and RBC Quant

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

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

Diversification Opportunities for IShares MSCI and RBC Quant

0.86

Correlation Coefficient

IShares MSCI  RBC Quant

Very poor diversification

The 3 months correlation between IShares and RBC is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI Europe and RBC Quant European in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RBC Quant European 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 Europe are associated (or correlated) with RBC Quant. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RBC Quant European has no effect on the direction of IShares MSCI i.e., IShares MSCI and RBC Quant go up and down completely randomly.

Pair Corralation between IShares MSCI and RBC Quant

Assuming the 90 days trading horizon IShares MSCI is expected to generate 1.03 times less return on investment than RBC Quant. In addition to that, IShares MSCI is 1.07 times more volatile than RBC Quant European. It trades about 0.07 of its total potential returns per unit of risk. RBC Quant European is currently generating about 0.07 per unit of volatility. If you would invest  2,105  in RBC Quant European on August 31, 2024 and sell it today you would earn a total of  494.00  from holding RBC Quant European or generate 23.47% return on investment over 90 days.

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

iShares MSCI Europe  vs.  RBC Quant European

iShares MSCI Europe

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares MSCI Europe has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, IShares MSCI is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

RBC Quant European

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RBC Quant European has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, RBC Quant 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 MSCI and RBC Quant

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

The idea behind iShares MSCI Europe and RBC Quant European 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .