Correlation Between IShares MSCI and Capital World
Can any of the company-specific risk be diversified away by investing in both IShares MSCI and Capital World 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 Capital World 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 Capital World Growth, you can compare the effects of market volatilities on IShares MSCI and Capital World 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 Capital World. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and Capital World.
Diversification Opportunities for IShares MSCI and Capital World
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between IShares and Capital is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding IShares MSCI EAFE and CAPITAL WORLD GROWTH in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital World Growth 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 Capital World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital World Growth has no effect on the direction of IShares MSCI i.e., IShares MSCI and Capital World go up and down completely randomly.
Pair Corralation between IShares MSCI and Capital World
Given the investment horizon of 90 days IShares MSCI is expected to generate 1.92 times less return on investment than Capital World. But when comparing it to its historical volatility, IShares MSCI EAFE is 1.53 times less risky than Capital World. It trades about 0.19 of its potential returns per unit of risk. Capital World Growth is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest 6,263 in Capital World Growth on December 29, 2023 and sell it today you would earn a total of 220.00 from holding Capital World Growth or generate 3.51% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
IShares MSCI EAFE vs. CAPITAL WORLD GROWTH
Performance |
Timeline |
IShares MSCI EAFE |
Capital World Growth |
IShares MSCI and Capital World Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with IShares MSCI and Capital World
The main advantage of trading using opposite IShares MSCI and Capital World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares MSCI position performs unexpectedly, Capital World 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 Capital World will offset losses from the drop in Capital World's long position.IShares MSCI vs. Freedom Day Dividend | IShares MSCI vs. IShares MSCI China | IShares MSCI vs. SmartETFs Dividend Builder | IShares MSCI vs. Listed Funds Trust |
Capital World vs. State Farm Growth | Capital World vs. Income Fund Of | Capital World vs. American Funds 2015 | Capital World vs. New World Fund |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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