Can any of the company-specific risk be diversified away by investing in both IShares MSCI and IShares Russell 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 Russell into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares MSCI USA and iShares Russell 2500, you can compare the effects of market volatilities on IShares MSCI and IShares Russell 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 Russell. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and IShares Russell.
Diversification Opportunities for IShares MSCI and IShares Russell
The 3 months correlation between IShares and IShares is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI USA and iShares Russell 2500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Russell 2500 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 USA are associated (or correlated) with IShares Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Russell 2500 has no effect on the direction of IShares MSCI i.e., IShares MSCI and IShares Russell go up and down completely randomly.
Pair Corralation between IShares MSCI and IShares Russell
Given the investment horizon of 90 days iShares MSCI USA is expected to generate 0.82 times more return on investment than IShares Russell. However, iShares MSCI USA is 1.22 times less risky than IShares Russell. It trades about 0.05 of its potential returns per unit of risk. iShares Russell 2500 is currently generating about -0.02 per unit of risk. If you would invest 3,717 in iShares MSCI USA on March 5, 2024 and sell it today you would earn a total of 23.00 from holding iShares MSCI USA or generate 0.62% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI USA are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable primary indicators, IShares MSCI is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.
Compared to the overall equity markets, risk-adjusted returns on investments in iShares Russell 2500 are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound primary indicators, IShares Russell is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.