Correlation Between IShares China and IShares MSCI

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

By analyzing existing cross correlation between iShares China Large Cap and iShares MSCI Emerging, you can compare the effects of market volatilities on IShares China and IShares MSCI 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 China with a short position of IShares MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares China and IShares MSCI.

Diversification Opportunities for IShares China and IShares MSCI

0.69

Correlation Coefficient

IShares China  IShares MSCI

Poor diversification

The 3 months correlation between IShares and IShares is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding iShares China Large Cap and iShares MSCI Emerging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI Emerging and IShares China 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 China Large Cap are associated (or correlated) with IShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MSCI Emerging has no effect on the direction of IShares China i.e., IShares China and IShares MSCI go up and down completely randomly.

Pair Corralation between IShares China and IShares MSCI

Considering the 90-day investment horizon iShares China Large Cap is expected to under-perform the IShares MSCI. In addition to that, IShares China is 1.29 times more volatile than iShares MSCI Emerging. It trades about -0.02 of its total potential returns per unit of risk. iShares MSCI Emerging is currently generating about -0.02 per unit of volatility. If you would invest  4,220  in iShares MSCI Emerging on June 13, 2024 and sell it today you would lose (23.00) from holding iShares MSCI Emerging or give up 0.55% of portfolio value over 90 days.

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

iShares China Large Cap  vs.  iShares MSCI Emerging

iShares China Large

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares China Large Cap has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, IShares China is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

iShares MSCI Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with IShares China and IShares MSCI

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

The idea behind iShares China Large Cap and iShares MSCI Emerging 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..