Correlation Between IShares MSCI and IShares IBoxx

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

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

Diversification Opportunities for IShares MSCI and IShares IBoxx

0.03

Correlation Coefficient

IShares MSCI  IShares IBoxx

Significant diversification

The 3 months correlation between IShares and IShares is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI Germany and iShares iBoxx Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares iBoxx Investment 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 Germany are associated (or correlated) with IShares IBoxx. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares iBoxx Investment has no effect on the direction of IShares MSCI i.e., IShares MSCI and IShares IBoxx go up and down completely randomly.

Pair Corralation between IShares MSCI and IShares IBoxx

Considering the 90-day investment horizon iShares MSCI Germany is expected to under-perform the IShares IBoxx. In addition to that, IShares MSCI is 1.35 times more volatile than iShares iBoxx Investment. It trades about -0.28 of its total potential returns per unit of risk. iShares iBoxx Investment is currently generating about -0.21 per unit of volatility. If you would invest  10,773  in iShares iBoxx Investment on January 20, 2024 and sell it today you would lose (283.00) from holding iShares iBoxx Investment or give up 2.63% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.65%
Values	Daily Returns

iShares MSCI Germany  vs.  iShares iBoxx Investment

iShares MSCI Germany

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI Germany are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, IShares MSCI is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

iShares iBoxx Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares iBoxx Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, IShares IBoxx is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with IShares MSCI and IShares IBoxx

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

The idea behind iShares MSCI Germany and iShares iBoxx Investment 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.