Correlation Between IShares MSCI and Listed Funds

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

By analyzing existing cross correlation between IShares MSCI Frontier and Listed Funds Trust, you can compare the effects of market volatilities on IShares MSCI and Listed Funds 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 Listed Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and Listed Funds.

Diversification Opportunities for IShares MSCI and Listed Funds

Very poor diversification

The 3 months correlation between IShares and Listed is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding IShares MSCI Frontier and Listed Funds Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Listed Funds Trust 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 Frontier are associated (or correlated) with Listed Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Listed Funds Trust has no effect on the direction of IShares MSCI i.e., IShares MSCI and Listed Funds go up and down completely randomly.

Pair Corralation between IShares MSCI and Listed Funds

Allowing for the 90-day total investment horizon IShares MSCI Frontier is expected to under-perform the Listed Funds. In addition to that, IShares MSCI is 1.09 times more volatile than Listed Funds Trust. It trades about -0.33 of its total potential returns per unit of risk. Listed Funds Trust is currently generating about -0.27 per unit of volatility. If you would invest  2,734  in Listed Funds Trust on July 2, 2023 and sell it today you would lose (86.00) from holding Listed Funds Trust or give up 3.15% of portfolio value over 90 days.

IShares MSCI Frontier  vs.  Listed Funds Trust

IShares MSCI Frontier

IShares Performance

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Over the last 90 days IShares MSCI Frontier has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, IShares MSCI is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the insiders.

Listed Funds Trust

Listed Performance

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Over the last 90 days Listed Funds Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Listed Funds 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 Listed Funds

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

The idea behind IShares MSCI Frontier and Listed Funds Trust 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.

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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.