Correlation Between IShares MSCI and IShares SPTSX

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

By analyzing existing cross correlation between iShares MSCI USA and iShares SPTSX 60, you can compare the effects of market volatilities on IShares MSCI and IShares SPTSX 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 SPTSX. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and IShares SPTSX.

Diversification Opportunities for IShares MSCI and IShares SPTSX

0.66

Correlation Coefficient

IShares MSCI  IShares SPTSX

Poor diversification

The 3 months correlation between IShares and IShares is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI USA and iShares SPTSX 60 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SPTSX 60 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 USA are associated (or correlated) with IShares SPTSX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares SPTSX 60 has no effect on the direction of IShares MSCI i.e., IShares MSCI and IShares SPTSX go up and down completely randomly.

Pair Corralation between IShares MSCI and IShares SPTSX

Assuming the 90 days trading horizon iShares MSCI USA is expected to under-perform the IShares SPTSX. In addition to that, IShares MSCI is 1.17 times more volatile than iShares SPTSX 60. It trades about -0.17 of its total potential returns per unit of risk. iShares SPTSX 60 is currently generating about -0.04 per unit of volatility. If you would invest  3,828  in iShares SPTSX 60 on December 4, 2024 and sell it today you would lose (25.00) from holding iShares SPTSX 60 or give up 0.65% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

iShares MSCI USA  vs.  iShares SPTSX 60

iShares MSCI USA

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI USA are ranked lower than 2 (%) 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 SPTSX 60

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares SPTSX 60 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, IShares SPTSX 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 IShares SPTSX

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

The idea behind iShares MSCI USA and iShares SPTSX 60 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.