Correlation Between SOFI TECHNOLOGIES and MSCI WORLD

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

By analyzing existing cross correlation between SOFI TECHNOLOGIES and MSCI WORLD CLIMATE, you can compare the effects of market volatilities on SOFI TECHNOLOGIES and MSCI WORLD 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 SOFI TECHNOLOGIES with a short position of MSCI WORLD. Check out your portfolio center. Please also check ongoing floating volatility patterns of SOFI TECHNOLOGIES and MSCI WORLD.

Diversification Opportunities for SOFI TECHNOLOGIES and MSCI WORLD

0.88

Correlation Coefficient

SOFI TECHNOLOGIES  MSCI WORLD

Very poor diversification

The 3 months correlation between SOFI and MSCI is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding SOFI TECHNOLOGIES and MSCI WORLD CLIMATE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MSCI WORLD CLIMATE and SOFI TECHNOLOGIES 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 SOFI TECHNOLOGIES are associated (or correlated) with MSCI WORLD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MSCI WORLD CLIMATE has no effect on the direction of SOFI TECHNOLOGIES i.e., SOFI TECHNOLOGIES and MSCI WORLD go up and down completely randomly.

Pair Corralation between SOFI TECHNOLOGIES and MSCI WORLD

Assuming the 90 days horizon SOFI TECHNOLOGIES is expected to generate 1.45 times less return on investment than MSCI WORLD. In addition to that, SOFI TECHNOLOGIES is 1.16 times more volatile than MSCI WORLD CLIMATE. It trades about 0.07 of its total potential returns per unit of risk. MSCI WORLD CLIMATE is currently generating about 0.12 per unit of volatility. If you would invest  3,280  in MSCI WORLD CLIMATE on September 12, 2024 and sell it today you would earn a total of  4,370  from holding MSCI WORLD CLIMATE or generate 133.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.2%
Values	Daily Returns

SOFI TECHNOLOGIES  vs.  MSCI WORLD CLIMATE

SOFI TECHNOLOGIES

Risk-Adjusted Performance

29 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in SOFI TECHNOLOGIES are ranked lower than 29 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, SOFI TECHNOLOGIES reported solid returns over the last few months and may actually be approaching a breakup point.

MSCI WORLD CLIMATE

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MSCI WORLD CLIMATE are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, MSCI WORLD unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SOFI TECHNOLOGIES and MSCI WORLD

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

The idea behind SOFI TECHNOLOGIES and MSCI WORLD CLIMATE 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.