Correlation Between IShares MSCI and IShares India

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

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

Diversification Opportunities for IShares MSCI and IShares India

-0.78

Correlation Coefficient

IShares MSCI  IShares India

Pay attention - limited upside

The 3 months correlation between IShares and IShares is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI EAFE and iShares India Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares India Index 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 EAFE are associated (or correlated) with IShares India. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares India Index has no effect on the direction of IShares MSCI i.e., IShares MSCI and IShares India go up and down completely randomly.

Pair Corralation between IShares MSCI and IShares India

Assuming the 90 days trading horizon iShares MSCI EAFE is expected to generate 0.84 times more return on investment than IShares India. However, iShares MSCI EAFE is 1.19 times less risky than IShares India. It trades about 0.17 of its potential returns per unit of risk. iShares India Index is currently generating about -0.2 per unit of risk. If you would invest  3,622  in iShares MSCI EAFE on December 2, 2024 and sell it today you would earn a total of  203.00  from holding iShares MSCI EAFE or generate 5.6% return on investment over 90 days.

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

iShares MSCI EAFE  vs.  iShares India Index

iShares MSCI EAFE

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI EAFE are ranked lower than 13 (%) 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.

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 latest unfluctuating performance, the Etf's fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

Pair Trading with IShares MSCI and IShares India

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

The idea behind iShares MSCI EAFE and iShares India Index 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.