Correlation Between IShares India and IShares MSCI

Can any of the company-specific risk be diversified away by investing in both IShares India 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 India 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 India Index and iShares MSCI EAFE, you can compare the effects of market volatilities on IShares India 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 India with a short position of IShares MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares India and IShares MSCI.

Diversification Opportunities for IShares India and IShares MSCI

-0.63

Correlation Coefficient

IShares India  IShares MSCI

Excellent diversification

The 3 months correlation between IShares and IShares is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding iShares India Index and iShares MSCI EAFE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI EAFE and IShares India 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 India Index 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 EAFE has no effect on the direction of IShares India i.e., IShares India and IShares MSCI go up and down completely randomly.

Pair Corralation between IShares India and IShares MSCI

Assuming the 90 days trading horizon iShares India Index is expected to under-perform the IShares MSCI. In addition to that, IShares India is 1.01 times more volatile than iShares MSCI EAFE. It trades about -0.01 of its total potential returns per unit of risk. iShares MSCI EAFE is currently generating about 0.11 per unit of volatility. If you would invest  3,580  in iShares MSCI EAFE on December 30, 2024 and sell it today you would earn a total of  181.00  from holding iShares MSCI EAFE or generate 5.06% return on investment over 90 days.

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

iShares India Index  vs.  iShares MSCI EAFE

iShares India Index

Risk-Adjusted Performance

Very Weak

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

iShares MSCI EAFE

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI EAFE are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. 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.

Pair Trading with IShares India and IShares MSCI

The main advantage of trading using opposite IShares India and IShares MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares India 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 India Index and iShares MSCI EAFE 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.