Correlation Between IShares MSCI and Xtrackers MSCI

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

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

Diversification Opportunities for IShares MSCI and Xtrackers MSCI

0.77

Correlation Coefficient

IShares MSCI  Xtrackers MSCI

Poor diversification

The 3 months correlation between IShares and Xtrackers is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI China and Xtrackers MSCI Japan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers MSCI 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 China are associated (or correlated) with Xtrackers MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers MSCI Japan has no effect on the direction of IShares MSCI i.e., IShares MSCI and Xtrackers MSCI go up and down completely randomly.

Pair Corralation between IShares MSCI and Xtrackers MSCI

Given the investment horizon of 90 days iShares MSCI China is expected to generate 1.82 times more return on investment than Xtrackers MSCI. However, IShares MSCI is 1.82 times more volatile than Xtrackers MSCI Japan. It trades about 0.2 of its potential returns per unit of risk. Xtrackers MSCI Japan is currently generating about -0.04 per unit of risk. If you would invest  2,406  in iShares MSCI China on February 3, 2024 and sell it today you would earn a total of  185.00  from holding iShares MSCI China or generate 7.69% return on investment over 90 days.

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

iShares MSCI China  vs.  Xtrackers MSCI Japan

iShares MSCI China

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI China are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, IShares MSCI unveiled solid returns over the last few months and may actually be approaching a breakup point.

Xtrackers MSCI Japan

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers MSCI Japan are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady forward-looking indicators, Xtrackers MSCI may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with IShares MSCI and Xtrackers MSCI

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

The idea behind iShares MSCI China and Xtrackers MSCI 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.