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 EAFE, 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
0.92 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Materials and IShares is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Materials Select Sector and iShares MSCI EAFE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI EAFE 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 EAFE 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 generate 0.98 times more return on investment than IShares MSCI. However, Materials Select Sector is 1.02 times less risky than IShares MSCI. It trades about -0.17 of its potential returns per unit of risk. iShares MSCI EAFE is currently generating about -0.19 per unit of risk. If you would invest 9,140 in Materials Select Sector on January 24, 2024 and sell it today you would lose (235.00) from holding Materials Select Sector or give up 2.57% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Materials Select Sector vs. iShares MSCI EAFE
Performance |
| Timeline |
| Materials Select Sector |
| iShares MSCI EAFE |
Materials Select and IShares MSCI Volatility Contrast
Predicted Return Density |
| Returns |
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.| Materials Select vs. SPDR SP Oil | Materials Select vs. SPDR SP Retail | Materials Select vs. SPDR SP Homebuilders |
| IShares MSCI vs. Dimensional ETF Trust | IShares MSCI vs. Vanguard Small Cap Index | IShares MSCI vs. First Trust Multi Manager | IShares MSCI vs. Vanguard SP Small Cap |
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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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