Correlation Between IShares MSCI and Xtrackers FTSE
Can any of the company-specific risk be diversified away by investing in both IShares MSCI and Xtrackers FTSE 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 Xtrackers FTSE 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 Xtrackers FTSE Developed, you can compare the effects of market volatilities on IShares MSCI and Xtrackers FTSE 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 Xtrackers FTSE. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and Xtrackers FTSE.
Diversification Opportunities for IShares MSCI and Xtrackers FTSE
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between IShares and Xtrackers is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI EAFE and Xtrackers FTSE Developed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers FTSE Developed 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 Xtrackers FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers FTSE Developed has no effect on the direction of IShares MSCI i.e., IShares MSCI and Xtrackers FTSE go up and down completely randomly.
Pair Corralation between IShares MSCI and Xtrackers FTSE
Considering the 90-day investment horizon iShares MSCI EAFE is expected to generate 1.03 times more return on investment than Xtrackers FTSE. However, IShares MSCI is 1.03 times more volatile than Xtrackers FTSE Developed. It trades about -0.04 of its potential returns per unit of risk. Xtrackers FTSE Developed is currently generating about -0.06 per unit of risk. If you would invest 5,601 in iShares MSCI EAFE on September 12, 2024 and sell it today you would lose (120.00) from holding iShares MSCI EAFE or give up 2.14% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
iShares MSCI EAFE vs. Xtrackers FTSE Developed
Performance |
| Timeline |
| iShares MSCI EAFE |
| Xtrackers FTSE Developed |
IShares MSCI and Xtrackers FTSE Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares MSCI and Xtrackers FTSE
The main advantage of trading using opposite IShares MSCI and Xtrackers FTSE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares MSCI position performs unexpectedly, Xtrackers FTSE 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 Xtrackers FTSE will offset losses from the drop in Xtrackers FTSE's long position.| IShares MSCI vs. iShares MSCI EAFE | IShares MSCI vs. iShares MSCI EAFE | IShares MSCI vs. WisdomTree International SmallCap | IShares MSCI vs. iShares Russell Mid Cap |
| Xtrackers FTSE vs. Xtrackers Russell Multifactor | Xtrackers FTSE vs. Xtrackers MSCI All | Xtrackers FTSE vs. WisdomTree Dynamic Currency | Xtrackers FTSE vs. Xtrackers MSCI Eurozone |
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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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