Correlation Between IShares MSCI and Democracy International

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Can any of the company-specific risk be diversified away by investing in both IShares MSCI and Democracy International 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 Democracy International into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares MSCI EAFE and Democracy International, you can compare the effects of market volatilities on IShares MSCI and Democracy International 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 Democracy International. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and Democracy International.

Diversification Opportunities for IShares MSCI and Democracy International

ISharesDemocracyDiversified AwayISharesDemocracyDiversified Away100%
0.94
  Correlation Coefficient

Almost no diversification

The 3 months correlation between IShares and Democracy is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI EAFE and Democracy International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Democracy International 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 EAFE are associated (or correlated) with Democracy International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Democracy International has no effect on the direction of IShares MSCI i.e., IShares MSCI and Democracy International go up and down completely randomly.

Pair Corralation between IShares MSCI and Democracy International

Considering the 90-day investment horizon iShares MSCI EAFE is expected to generate 1.03 times more return on investment than Democracy International. However, IShares MSCI is 1.03 times more volatile than Democracy International. It trades about 0.05 of its potential returns per unit of risk. Democracy International is currently generating about 0.05 per unit of risk. If you would invest  6,760  in iShares MSCI EAFE on November 27, 2024 and sell it today you would earn a total of  1,389  from holding iShares MSCI EAFE or generate 20.55% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

iShares MSCI EAFE  vs.  Democracy International

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -202468
JavaScript chart by amCharts 3.21.15EFA DMCY
       Timeline  
iShares MSCI EAFE 

Risk-Adjusted Performance

Good

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI EAFE are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating technical and fundamental indicators, IShares MSCI may actually be approaching a critical reversion point that can send shares even higher in March 2025.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb7576777879808182
Democracy International 

Risk-Adjusted Performance

OK

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Democracy International are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, Democracy International is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb24.52525.52626.5

IShares MSCI and Democracy International Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-2.24-1.66-1.08-0.50.07110.651.241.832.423.01 0.20.40.60.8
JavaScript chart by amCharts 3.21.15EFA DMCY
       Returns  

Pair Trading with IShares MSCI and Democracy International

The main advantage of trading using opposite IShares MSCI and Democracy International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares MSCI position performs unexpectedly, Democracy International 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 Democracy International will offset losses from the drop in Democracy International's long position.
The idea behind iShares MSCI EAFE and Democracy International 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.

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