Correlation Between IShares MSCI and Franklin FTSE

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

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

Diversification Opportunities for IShares MSCI and Franklin FTSE

0.7

Correlation Coefficient

IShares MSCI  Franklin FTSE

Poor diversification

The 3 months correlation between IShares and Franklin is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI Israel and Franklin FTSE Japan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin FTSE Japan 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 Israel are associated (or correlated) with Franklin FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin FTSE Japan has no effect on the direction of IShares MSCI i.e., IShares MSCI and Franklin FTSE go up and down completely randomly.

Pair Corralation between IShares MSCI and Franklin FTSE

Considering the 90-day investment horizon iShares MSCI Israel is expected to generate 0.79 times more return on investment than Franklin FTSE. However, iShares MSCI Israel is 1.27 times less risky than Franklin FTSE. It trades about 0.15 of its potential returns per unit of risk. Franklin FTSE Japan is currently generating about 0.03 per unit of risk. If you would invest  6,081  in iShares MSCI Israel on September 13, 2024 and sell it today you would earn a total of  1,610  from holding iShares MSCI Israel or generate 26.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

iShares MSCI Israel  vs.  Franklin FTSE Japan

iShares MSCI Israel

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI Israel are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady forward indicators, IShares MSCI unveiled solid returns over the last few months and may actually be approaching a breakup point.

Franklin FTSE Japan

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin FTSE Japan are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak forward-looking indicators, Franklin FTSE may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares MSCI and Franklin FTSE

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

The idea behind iShares MSCI Israel and Franklin FTSE Japan 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.