Correlation Between IShares MSCI and FlexShares Morningstar

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

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

Diversification Opportunities for IShares MSCI and FlexShares Morningstar

0.96

Correlation Coefficient

IShares MSCI  FlexShares Morningstar

Almost no diversification

The 3 months correlation between IShares and FlexShares is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI EAFE and FlexShares Morningstar Develop in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares Morningstar 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 EAFE are associated (or correlated) with FlexShares Morningstar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares Morningstar has no effect on the direction of IShares MSCI i.e., IShares MSCI and FlexShares Morningstar go up and down completely randomly.

Pair Corralation between IShares MSCI and FlexShares Morningstar

Considering the 90-day investment horizon iShares MSCI EAFE is expected to generate 1.07 times more return on investment than FlexShares Morningstar. However, IShares MSCI is 1.07 times more volatile than FlexShares Morningstar Developed. It trades about 0.25 of its potential returns per unit of risk. FlexShares Morningstar Developed is currently generating about 0.24 per unit of risk. If you would invest  5,420  in iShares MSCI EAFE on March 3, 2024 and sell it today you would earn a total of  207.00  from holding iShares MSCI EAFE or generate 3.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.45%
Values	Daily Returns

iShares MSCI EAFE  vs.  FlexShares Morningstar Develop

iShares MSCI EAFE

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI EAFE are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating technical and fundamental indicators, IShares MSCI may actually be approaching a critical reversion point that can send shares even higher in July 2024.

FlexShares Morningstar

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in FlexShares Morningstar Developed are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, FlexShares Morningstar is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with IShares MSCI and FlexShares Morningstar

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

The idea behind iShares MSCI EAFE and FlexShares Morningstar Developed 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.