Correlation Between IShares MSCI and Tax-exempt Bond

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

By analyzing existing cross correlation between iShares MSCI Ireland and Tax Exempt Bond Fund, you can compare the effects of market volatilities on IShares MSCI and Tax-exempt Bond 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 Tax-exempt Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and Tax-exempt Bond.

Diversification Opportunities for IShares MSCI and Tax-exempt Bond

0.7

Correlation Coefficient

IShares MSCI  Tax-exempt Bond

Poor diversification

The 3 months correlation between IShares and Tax-exempt is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI Ireland and Tax Exempt Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tax Exempt Bond 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 Ireland are associated (or correlated) with Tax-exempt Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tax Exempt Bond has no effect on the direction of IShares MSCI i.e., IShares MSCI and Tax-exempt Bond go up and down completely randomly.

Pair Corralation between IShares MSCI and Tax-exempt Bond

Given the investment horizon of 90 days iShares MSCI Ireland is expected to under-perform the Tax-exempt Bond. In addition to that, IShares MSCI is 6.16 times more volatile than Tax Exempt Bond Fund. It trades about -0.06 of its total potential returns per unit of risk. Tax Exempt Bond Fund is currently generating about -0.27 per unit of volatility. If you would invest  677.00  in Tax Exempt Bond Fund on January 25, 2024 and sell it today you would lose (7.00) from holding Tax Exempt Bond Fund or give up 1.03% of portfolio value over 90 days.

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

iShares MSCI Ireland  vs.  Tax Exempt Bond Fund

iShares MSCI Ireland

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI Ireland are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, IShares MSCI may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Tax Exempt Bond

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Tax Exempt Bond Fund are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Tax-exempt Bond is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares MSCI and Tax-exempt Bond

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

The idea behind iShares MSCI Ireland and Tax Exempt Bond Fund 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.