Correlation Between IShares MSCI and Absolute Capital

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

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

Diversification Opportunities for IShares MSCI and Absolute Capital

0.9

Correlation Coefficient

IShares MSCI  Absolute Capital

Almost no diversification

The 3 months correlation between IShares and Absolute is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI Europe and Absolute Capital Defender in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Absolute Capital Defender 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 Europe are associated (or correlated) with Absolute Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Absolute Capital Defender has no effect on the direction of IShares MSCI i.e., IShares MSCI and Absolute Capital go up and down completely randomly.

Pair Corralation between IShares MSCI and Absolute Capital

Given the investment horizon of 90 days iShares MSCI Europe is expected to generate 2.04 times more return on investment than Absolute Capital. However, IShares MSCI is 2.04 times more volatile than Absolute Capital Defender. It trades about 0.15 of its potential returns per unit of risk. Absolute Capital Defender is currently generating about 0.01 per unit of risk. If you would invest  2,088  in iShares MSCI Europe on January 20, 2024 and sell it today you would earn a total of  99.00  from holding iShares MSCI Europe or generate 4.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	97.67%
Values	Daily Returns

iShares MSCI Europe  vs.  Absolute Capital Defender

iShares MSCI Europe

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI Europe are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady technical and fundamental indicators, IShares MSCI may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Absolute Capital Defender

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Absolute Capital Defender are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Absolute Capital 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 Absolute Capital

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

The idea behind iShares MSCI Europe and Absolute Capital Defender 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.