Correlation Between Morningstar Unconstrained and MSCI ACWI

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

By analyzing existing cross correlation between Morningstar Unconstrained Allocation and MSCI ACWI exAUCONSUMER, you can compare the effects of market volatilities on Morningstar Unconstrained and MSCI ACWI 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 Morningstar Unconstrained with a short position of MSCI ACWI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Morningstar Unconstrained and MSCI ACWI.

Diversification Opportunities for Morningstar Unconstrained and MSCI ACWI

0.68

Correlation Coefficient

Morningstar Unconstrained  MSCI ACWI

Poor diversification

The 3 months correlation between Morningstar and MSCI is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Morningstar Unconstrained Allo and MSCI ACWI exAUCONSUMER in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MSCI ACWI exAUCONSUMER and Morningstar Unconstrained 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 Morningstar Unconstrained Allocation are associated (or correlated) with MSCI ACWI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MSCI ACWI exAUCONSUMER has no effect on the direction of Morningstar Unconstrained i.e., Morningstar Unconstrained and MSCI ACWI go up and down completely randomly.

Pair Corralation between Morningstar Unconstrained and MSCI ACWI

Assuming the 90 days horizon Morningstar Unconstrained Allocation is expected to generate 3.18 times more return on investment than MSCI ACWI. However, Morningstar Unconstrained is 3.18 times more volatile than MSCI ACWI exAUCONSUMER. It trades about 0.47 of its potential returns per unit of risk. MSCI ACWI exAUCONSUMER is currently generating about 0.48 per unit of risk. If you would invest  1,030  in Morningstar Unconstrained Allocation on February 16, 2025 and sell it today you would earn a total of  80.00  from holding Morningstar Unconstrained Allocation or generate 7.77% return on investment over 90 days.

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

Morningstar Unconstrained Allo  vs.  MSCI ACWI exAUCONSUMER

Morningstar Unconstrained

Risk-Adjusted Performance

Very Weak

Over the last 90 days Morningstar Unconstrained Allocation has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Morningstar Unconstrained is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

MSCI ACWI exAUCONSUMER

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MSCI ACWI exAUCONSUMER are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, MSCI ACWI is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Morningstar Unconstrained and MSCI ACWI

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

The idea behind Morningstar Unconstrained Allocation and MSCI ACWI exAUCONSUMER 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.