Correlation Between IShares MSCI and Novartis

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

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

Diversification Opportunities for IShares MSCI and Novartis

0.55

Correlation Coefficient

IShares MSCI  Novartis

Very weak diversification

The 3 months correlation between IShares and Novartis is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI Brazil and Novartis AG ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novartis AG ADR 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 Brazil are associated (or correlated) with Novartis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Novartis AG ADR has no effect on the direction of IShares MSCI i.e., IShares MSCI and Novartis go up and down completely randomly.

Pair Corralation between IShares MSCI and Novartis

Considering the 90-day investment horizon iShares MSCI Brazil is expected to under-perform the Novartis. In addition to that, IShares MSCI is 1.34 times more volatile than Novartis AG ADR. It trades about -0.13 of its total potential returns per unit of risk. Novartis AG ADR is currently generating about -0.08 per unit of volatility. If you would invest  9,592  in Novartis AG ADR on January 17, 2024 and sell it today you would lose (151.00) from holding Novartis AG ADR or give up 1.57% of portfolio value over 90 days.

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

iShares MSCI Brazil  vs.  Novartis AG ADR

iShares MSCI Brazil

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares MSCI Brazil has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Novartis AG ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Novartis AG ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with IShares MSCI and Novartis

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

The idea behind iShares MSCI Brazil and Novartis AG ADR 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.