Correlation Between Financial Select and IShares MSCI

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

Diversification Opportunities for Financial Select and IShares MSCI

0.19

Correlation Coefficient

Financial Select  IShares MSCI

Average diversification

The 3 months correlation between Financial and IShares is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Financial Select Sector and iShares MSCI Europe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI Europe and Financial 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 Financial 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 Europe has no effect on the direction of Financial Select i.e., Financial Select and IShares MSCI go up and down completely randomly.

Pair Corralation between Financial Select and IShares MSCI

Considering the 90-day investment horizon Financial Select is expected to generate 8.31 times less return on investment than IShares MSCI. But when comparing it to its historical volatility, Financial Select Sector is 1.11 times less risky than IShares MSCI. It trades about 0.04 of its potential returns per unit of risk. iShares MSCI Europe is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  2,332  in iShares MSCI Europe on December 30, 2024 and sell it today you would earn a total of  553.00  from holding iShares MSCI Europe or generate 23.71% return on investment over 90 days.

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

Financial Select Sector  vs.  iShares MSCI Europe

Financial Select Sector

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Financial Select Sector are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable essential indicators, Financial Select is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

iShares MSCI Europe

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI Europe are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain technical and fundamental indicators, IShares MSCI displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Financial Select and IShares MSCI

The main advantage of trading using opposite Financial Select and IShares MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financial 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 Financial Select Sector and iShares MSCI Europe 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.