Correlation Between Overlay Shares and IShares MSCI
Can any of the company-specific risk be diversified away by investing in both Overlay Shares and IShares MSCI 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 Overlay Shares and IShares MSCI into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Overlay Shares Core and iShares MSCI EAFE, you can compare the effects of market volatilities on Overlay Shares and IShares MSCI 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 Overlay Shares with a short position of IShares MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Overlay Shares and IShares MSCI.
Diversification Opportunities for Overlay Shares and IShares MSCI
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Overlay and IShares is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Overlay Shares Core and iShares MSCI EAFE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI EAFE and Overlay Shares 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 Overlay Shares Core are associated (or correlated) with IShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MSCI EAFE has no effect on the direction of Overlay Shares i.e., Overlay Shares and IShares MSCI go up and down completely randomly.
Pair Corralation between Overlay Shares and IShares MSCI
Considering the 90-day investment horizon Overlay Shares is expected to generate 2.08 times less return on investment than IShares MSCI. But when comparing it to its historical volatility, Overlay Shares Core is 1.68 times less risky than IShares MSCI. It trades about 0.04 of its potential returns per unit of risk. iShares MSCI EAFE is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 6,345 in iShares MSCI EAFE on August 24, 2024 and sell it today you would earn a total of 1,411 from holding iShares MSCI EAFE or generate 22.24% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Overlay Shares Core vs. iShares MSCI EAFE
Performance |
| Timeline |
| Overlay Shares Core |
| iShares MSCI EAFE |
Overlay Shares and IShares MSCI Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Overlay Shares and IShares MSCI
The main advantage of trading using opposite Overlay Shares and IShares MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Overlay Shares position performs unexpectedly, IShares MSCI 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 MSCI will offset losses from the drop in IShares MSCI's long position.| Overlay Shares vs. iShares MSCI EAFE | Overlay Shares vs. iShares iBoxx Investment | Overlay Shares vs. iShares TIPS Bond | Overlay Shares vs. iShares 1 3 Year |
| IShares MSCI vs. iShares MSCI Emerging | IShares MSCI vs. iShares Core Aggregate | IShares MSCI vs. iShares Russell 2000 | IShares MSCI vs. iShares MSCI Japan |
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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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