Correlation Between IShares Core and SPDR MSCI

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

By analyzing existing cross correlation between iShares Core SP and SPDR MSCI World, you can compare the effects of market volatilities on IShares Core and SPDR 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 IShares Core with a short position of SPDR MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Core and SPDR MSCI.

Diversification Opportunities for IShares Core and SPDR MSCI

0.93

Correlation Coefficient

IShares Core  SPDR MSCI

Almost no diversification

The 3 months correlation between IShares and SPDR is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core SP and SPDR MSCI World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR MSCI World and IShares Core 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 Core SP are associated (or correlated) with SPDR MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR MSCI World has no effect on the direction of IShares Core i.e., IShares Core and SPDR MSCI go up and down completely randomly.

Pair Corralation between IShares Core and SPDR MSCI

Assuming the 90 days trading horizon IShares Core is expected to generate 1.93 times less return on investment than SPDR MSCI. But when comparing it to its historical volatility, iShares Core SP is 1.53 times less risky than SPDR MSCI. It trades about 0.09 of its potential returns per unit of risk. SPDR MSCI World is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  16,970  in SPDR MSCI World on September 28, 2024 and sell it today you would earn a total of  1,200  from holding SPDR MSCI World or generate 7.07% return on investment over 90 days.

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

iShares Core SP  vs.  SPDR MSCI World

iShares Core SP

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core SP are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, IShares Core is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

SPDR MSCI World

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR MSCI World are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, SPDR MSCI may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares Core and SPDR MSCI

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

The idea behind iShares Core SP and SPDR MSCI World 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.