Correlation Between IShares MSCI and Principal Value

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Can any of the company-specific risk be diversified away by investing in both IShares MSCI and Principal Value 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 Principal Value into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares MSCI China and Principal Value ETF, you can compare the effects of market volatilities on IShares MSCI and Principal Value 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 Principal Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and Principal Value.

Diversification Opportunities for IShares MSCI and Principal Value

0.82
  Correlation Coefficient

Very poor diversification

The 3 months correlation between IShares and Principal is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI China and Principal Value ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal Value ETF 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 China are associated (or correlated) with Principal Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Principal Value ETF has no effect on the direction of IShares MSCI i.e., IShares MSCI and Principal Value go up and down completely randomly.

Pair Corralation between IShares MSCI and Principal Value

Given the investment horizon of 90 days iShares MSCI China is expected to under-perform the Principal Value. In addition to that, IShares MSCI is 2.03 times more volatile than Principal Value ETF. It trades about -0.05 of its total potential returns per unit of risk. Principal Value ETF is currently generating about 0.05 per unit of volatility. If you would invest  4,023  in Principal Value ETF on January 17, 2024 and sell it today you would earn a total of  427.00  from holding Principal Value ETF or generate 10.61% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

iShares MSCI China  vs.  Principal Value ETF

 Performance 
       Timeline  
iShares MSCI China 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI China are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak technical indicators, IShares MSCI may actually be approaching a critical reversion point that can send shares even higher in May 2024.
Principal Value ETF 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Principal Value ETF are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Principal Value is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

IShares MSCI and Principal Value Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with IShares MSCI and Principal Value

The main advantage of trading using opposite IShares MSCI and Principal Value positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares MSCI position performs unexpectedly, Principal Value 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 Principal Value will offset losses from the drop in Principal Value's long position.
The idea behind iShares MSCI China and Principal Value ETF 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 Stocks Directory module to find actively traded stocks across global markets.

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