Correlation Between MSCI and London Stock

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

By analyzing existing cross correlation between MSCI Inc and London Stock Exchange, you can compare the effects of market volatilities on MSCI and London Stock 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 MSCI with a short position of London Stock. Check out your portfolio center. Please also check ongoing floating volatility patterns of MSCI and London Stock.

Diversification Opportunities for MSCI and London Stock

-0.1

Correlation Coefficient

MSCI  London Stock

Good diversification

The 3 months correlation between MSCI and London is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding MSCI Inc and London Stock Exchange in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on London Stock Exchange and 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 MSCI Inc are associated (or correlated) with London Stock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of London Stock Exchange has no effect on the direction of MSCI i.e., MSCI and London Stock go up and down completely randomly.

Pair Corralation between MSCI and London Stock

Given the investment horizon of 90 days MSCI Inc is expected to under-perform the London Stock. In addition to that, MSCI is 3.79 times more volatile than London Stock Exchange. It trades about -0.19 of its total potential returns per unit of risk. London Stock Exchange is currently generating about -0.23 per unit of volatility. If you would invest  2,935  in London Stock Exchange on February 2, 2024 and sell it today you would lose (130.00) from holding London Stock Exchange or give up 4.43% of portfolio value over 90 days.

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

MSCI Inc  vs.  London Stock Exchange

MSCI Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MSCI Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in June 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

London Stock Exchange

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in London Stock Exchange are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, London Stock is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with MSCI and London Stock

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

The idea behind MSCI Inc and London Stock Exchange 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.