Correlation Between IShares MSCI and IShares Russell

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Can any of the company-specific risk be diversified away by investing in both IShares MSCI and IShares Russell 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 IShares Russell into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares MSCI Japan and iShares Russell 2000, you can compare the effects of market volatilities on IShares MSCI and IShares Russell 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 IShares Russell. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and IShares Russell.

Diversification Opportunities for IShares MSCI and IShares Russell

ISharesISharesDiversified AwayISharesISharesDiversified Away100%
0.47
  Correlation Coefficient

Very weak diversification

The 3 months correlation between IShares and IShares is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI Japan and iShares Russell 2000 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Russell 2000 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 Japan are associated (or correlated) with IShares Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Russell 2000 has no effect on the direction of IShares MSCI i.e., IShares MSCI and IShares Russell go up and down completely randomly.

Pair Corralation between IShares MSCI and IShares Russell

Considering the 90-day investment horizon iShares MSCI Japan is expected to generate 0.94 times more return on investment than IShares Russell. However, iShares MSCI Japan is 1.06 times less risky than IShares Russell. It trades about 0.05 of its potential returns per unit of risk. iShares Russell 2000 is currently generating about -0.23 per unit of risk. If you would invest  6,848  in iShares MSCI Japan on November 25, 2024 and sell it today you would earn a total of  61.00  from holding iShares MSCI Japan or generate 0.89% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

iShares MSCI Japan  vs.  iShares Russell 2000

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -6-4-20246
JavaScript chart by amCharts 3.21.15EWJ IWM
       Timeline  
iShares MSCI Japan 

Risk-Adjusted Performance

Insignificant

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI Japan are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively steady basic indicators, IShares MSCI is not utilizing all of its potentials. The current stock price chaos, may contribute to medium-term losses for the stakeholders.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb656667686970
iShares Russell 2000 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days iShares Russell 2000 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb215220225230235240245

IShares MSCI and IShares Russell Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-3.06-2.29-1.53-0.760.00.781.572.373.16 0.10.20.30.4
JavaScript chart by amCharts 3.21.15EWJ IWM
       Returns  

Pair Trading with IShares MSCI and IShares Russell

The main advantage of trading using opposite IShares MSCI and IShares Russell positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares MSCI position performs unexpectedly, IShares Russell 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 IShares Russell will offset losses from the drop in IShares Russell's long position.
The idea behind iShares MSCI Japan and iShares Russell 2000 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.

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