Correlation Between Materials Select and IShares MSCI

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

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

Diversification Opportunities for Materials Select and IShares MSCI

0.75

Correlation Coefficient

Materials Select  IShares MSCI

Poor diversification

The 3 months correlation between Materials and IShares is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Materials Select Sector and iShares MSCI Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI Global and Materials Select 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 Materials Select Sector 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 Global has no effect on the direction of Materials Select i.e., Materials Select and IShares MSCI go up and down completely randomly.

Pair Corralation between Materials Select and IShares MSCI

Considering the 90-day investment horizon Materials Select Sector is expected to under-perform the IShares MSCI. But the etf apears to be less risky and, when comparing its historical volatility, Materials Select Sector is 1.66 times less risky than IShares MSCI. The etf trades about -0.15 of its potential returns per unit of risk. The iShares MSCI Global is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  3,835  in iShares MSCI Global on September 16, 2024 and sell it today you would lose (35.00) from holding iShares MSCI Global or give up 0.91% of portfolio value over 90 days.

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

Materials Select Sector  vs.  iShares MSCI Global

Materials Select Sector

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Materials Select Sector has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong essential indicators, Materials Select is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

iShares MSCI Global

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares MSCI Global has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, IShares MSCI is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Materials Select and IShares MSCI

The main advantage of trading using opposite Materials Select and IShares MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Materials Select 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 Materials Select Sector and iShares MSCI Global 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..