Correlation Between IShares MSCI and AMS Small

Can any of the company-specific risk be diversified away by investing in both IShares MSCI and AMS Small 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 AMS Small into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between iShares MSCI EM and AMS Small Cap, you can compare the effects of market volatilities on IShares MSCI and AMS Small 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 AMS Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and AMS Small.

Diversification Opportunities for IShares MSCI and AMS Small

0.85

Correlation Coefficient

IShares MSCI  AMS Small

Very poor diversification

The 3 months correlation between IShares and AMS is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI EM and AMS Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AMS Small Cap 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 EM are associated (or correlated) with AMS Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AMS Small Cap has no effect on the direction of IShares MSCI i.e., IShares MSCI and AMS Small go up and down completely randomly.

Pair Corralation between IShares MSCI and AMS Small

Assuming the 90 days trading horizon iShares MSCI EM is expected to generate 1.08 times more return on investment than AMS Small. However, IShares MSCI is 1.08 times more volatile than AMS Small Cap. It trades about 0.25 of its potential returns per unit of risk. AMS Small Cap is currently generating about 0.18 per unit of risk. If you would invest  3,638  in iShares MSCI EM on April 21, 2025 and sell it today you would earn a total of  573.00  from holding iShares MSCI EM or generate 15.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

iShares MSCI EM  vs.  AMS Small Cap

Pair Trading with IShares MSCI and AMS Small

The main advantage of trading using opposite IShares MSCI and AMS Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares MSCI position performs unexpectedly, AMS Small 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 AMS Small will offset losses from the drop in AMS Small's long position.

The idea behind iShares MSCI EM and AMS Small Cap 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.