Correlation Between IShares MSCI and Financial Select
Can any of the company-specific risk be diversified away by investing in both IShares MSCI and Financial Select 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 Financial Select into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares MSCI Emerging and Financial Select Sector, you can compare the effects of market volatilities on IShares MSCI and Financial Select 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 Financial Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and Financial Select.
Diversification Opportunities for IShares MSCI and Financial Select
0.02 | Correlation Coefficient |
Significant diversification
The 3 months correlation between IShares and Financial is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI Emerging and Financial Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Select Sector 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 Emerging are associated (or correlated) with Financial Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Select Sector has no effect on the direction of IShares MSCI i.e., IShares MSCI and Financial Select go up and down completely randomly.
Pair Corralation between IShares MSCI and Financial Select
Considering the 90-day investment horizon iShares MSCI Emerging is expected to under-perform the Financial Select. But the etf apears to be less risky and, when comparing its historical volatility, iShares MSCI Emerging is 1.02 times less risky than Financial Select. The etf trades about -0.07 of its potential returns per unit of risk. The Financial Select Sector is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest 4,479 in Financial Select Sector on August 26, 2024 and sell it today you would earn a total of 594.00 from holding Financial Select Sector or generate 13.26% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
iShares MSCI Emerging vs. Financial Select Sector
Performance |
| Timeline |
| iShares MSCI Emerging |
| Financial Select Sector |
IShares MSCI and Financial Select Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares MSCI and Financial Select
The main advantage of trading using opposite IShares MSCI and Financial Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares MSCI position performs unexpectedly, Financial Select 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 Financial Select will offset losses from the drop in Financial Select's long position.| IShares MSCI vs. Invesco PureBeta MSCI | IShares MSCI vs. Aquagold International | IShares MSCI vs. Morningstar Unconstrained Allocation | IShares MSCI vs. High Yield Municipal Fund |
| Financial Select vs. Energy Select Sector | Financial Select vs. Technology Select Sector | Financial Select vs. Health Care Select | Financial Select vs. Industrial Select Sector |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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