Correlation Between IShares MSCI and IQ 500
Can any of the company-specific risk be diversified away by investing in both IShares MSCI and IQ 500 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 IQ 500 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 IQ 500 International, you can compare the effects of market volatilities on IShares MSCI and IQ 500 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 IQ 500. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and IQ 500.
Diversification Opportunities for IShares MSCI and IQ 500
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between IShares and IQIN is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI EAFE and IQ 500 International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IQ 500 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 IQ 500. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IQ 500 International has no effect on the direction of IShares MSCI i.e., IShares MSCI and IQ 500 go up and down completely randomly.
Pair Corralation between IShares MSCI and IQ 500
Considering the 90-day investment horizon iShares MSCI EAFE is expected to generate 0.97 times more return on investment than IQ 500. However, iShares MSCI EAFE is 1.03 times less risky than IQ 500. It trades about -0.12 of its potential returns per unit of risk. IQ 500 International is currently generating about -0.16 per unit of risk. If you would invest 5,524 in iShares MSCI EAFE on August 26, 2024 and sell it today you would lose (124.00) from holding iShares MSCI EAFE or give up 2.24% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 90.91% |
| Values | Daily Returns |
iShares MSCI EAFE vs. IQ 500 International
Performance |
| Timeline |
| iShares MSCI EAFE |
| IQ 500 International |
IShares MSCI and IQ 500 Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares MSCI and IQ 500
The main advantage of trading using opposite IShares MSCI and IQ 500 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares MSCI position performs unexpectedly, IQ 500 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 IQ 500 will offset losses from the drop in IQ 500's long position.| IShares MSCI vs. Dimensional Targeted Value | IShares MSCI vs. Dimensional Small Cap | IShares MSCI vs. Dimensional Marketwide Value | IShares MSCI vs. Dimensional Core Equity |
| IQ 500 vs. IQ 50 Percent | IQ 500 vs. FlexShares International Quality | IQ 500 vs. Invesco SP International | IQ 500 vs. American Century Quality |
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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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