Can any of the company-specific risk be diversified away by investing in both IShares MSCI and IShares Canadian 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 Canadian 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 iShares Canadian Real, you can compare the effects of market volatilities on IShares MSCI and IShares Canadian 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 Canadian. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and IShares Canadian.
Diversification Opportunities for IShares MSCI and IShares Canadian
The 3 months correlation between IShares and IShares is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI EAFE and iShares Canadian Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Canadian Real 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 IShares Canadian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Canadian Real has no effect on the direction of IShares MSCI i.e., IShares MSCI and IShares Canadian go up and down completely randomly.
Pair Corralation between IShares MSCI and IShares Canadian
Assuming the 90 days trading horizon iShares MSCI EAFE is expected to generate 0.83 times more return on investment than IShares Canadian. However, iShares MSCI EAFE is 1.2 times less risky than IShares Canadian. It trades about 0.14 of its potential returns per unit of risk. iShares Canadian Real is currently generating about 0.02 per unit of risk. If you would invest 3,529 in iShares MSCI EAFE on March 6, 2024 and sell it today you would earn a total of 173.00 from holding iShares MSCI EAFE or generate 4.9% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI EAFE are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, IShares MSCI is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.
Compared to the overall equity markets, risk-adjusted returns on investments in iShares Canadian Real are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental drivers, IShares Canadian is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.