Correlation Between IShares MSCI and Knowledge Leaders

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

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

Diversification Opportunities for IShares MSCI and Knowledge Leaders

0.9

Correlation Coefficient

IShares MSCI  Knowledge Leaders

Almost no diversification

The 3 months correlation between IShares and Knowledge is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI Global and Knowledge Leaders Developed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Knowledge Leaders 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 Global are associated (or correlated) with Knowledge Leaders. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Knowledge Leaders has no effect on the direction of IShares MSCI i.e., IShares MSCI and Knowledge Leaders go up and down completely randomly.

Pair Corralation between IShares MSCI and Knowledge Leaders

Given the investment horizon of 90 days iShares MSCI Global is expected to generate 0.64 times more return on investment than Knowledge Leaders. However, iShares MSCI Global is 1.56 times less risky than Knowledge Leaders. It trades about -0.29 of its potential returns per unit of risk. Knowledge Leaders Developed is currently generating about -0.22 per unit of risk. If you would invest  10,527  in iShares MSCI Global on January 28, 2024 and sell it today you would lose (280.00) from holding iShares MSCI Global or give up 2.66% of portfolio value over 90 days.

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

iShares MSCI Global  vs.  Knowledge Leaders Developed

iShares MSCI Global

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI Global are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, IShares MSCI is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Knowledge Leaders

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Knowledge Leaders Developed are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable fundamental indicators, Knowledge Leaders is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with IShares MSCI and Knowledge Leaders

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

The idea behind iShares MSCI Global and Knowledge Leaders 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.

Check out your portfolio center.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.