Correlation Between IShares MSCI and Principal Quality

Can any of the company-specific risk be diversified away by investing in both IShares MSCI and Principal Quality 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 Principal Quality 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 Principal Quality ETF, you can compare the effects of market volatilities on IShares MSCI and Principal Quality 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 Principal Quality. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and Principal Quality.

Diversification Opportunities for IShares MSCI and Principal Quality

-0.7

Correlation Coefficient

IShares MSCI  Principal Quality

Excellent diversification

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

Pair Corralation between IShares MSCI and Principal Quality

Given the investment horizon of 90 days iShares MSCI Global is expected to generate 1.2 times more return on investment than Principal Quality. However, IShares MSCI is 1.2 times more volatile than Principal Quality ETF. It trades about 0.16 of its potential returns per unit of risk. Principal Quality ETF is currently generating about -0.07 per unit of risk. If you would invest  3,241  in iShares MSCI Global on January 31, 2025 and sell it today you would earn a total of  810.00  from holding iShares MSCI Global or generate 24.99% return on investment over 90 days.

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

iShares MSCI Global  vs.  Principal Quality ETF

iShares MSCI Global

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI Global are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, IShares MSCI reported solid returns over the last few months and may actually be approaching a breakup point.

Principal Quality ETF

Risk-Adjusted Performance

Very Weak

Over the last 90 days Principal Quality ETF has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the exchange-traded fund private investors.

Pair Trading with IShares MSCI and Principal Quality

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

The idea behind iShares MSCI Global and Principal Quality ETF 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.