Correlation Between IShares MSCI and SPDR SSGA

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

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

Diversification Opportunities for IShares MSCI and SPDR SSGA

0.66

Correlation Coefficient

IShares MSCI  SPDR SSGA

Poor diversification

The 3 months correlation between IShares and SPDR is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI KLD and SPDR SSGA Gender in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SSGA Gender 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 KLD are associated (or correlated) with SPDR SSGA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SSGA Gender has no effect on the direction of IShares MSCI i.e., IShares MSCI and SPDR SSGA go up and down completely randomly.

Pair Corralation between IShares MSCI and SPDR SSGA

Considering the 90-day investment horizon iShares MSCI KLD is expected to under-perform the SPDR SSGA. In addition to that, IShares MSCI is 1.29 times more volatile than SPDR SSGA Gender. It trades about -0.09 of its total potential returns per unit of risk. SPDR SSGA Gender is currently generating about -0.02 per unit of volatility. If you would invest  11,692  in SPDR SSGA Gender on December 27, 2024 and sell it today you would lose (130.00) from holding SPDR SSGA Gender or give up 1.11% of portfolio value over 90 days.

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

iShares MSCI KLD  vs.  SPDR SSGA Gender

iShares MSCI KLD

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares MSCI KLD has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Etf's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the Etf traders.

SPDR SSGA Gender

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR SSGA Gender has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical indicators, SPDR SSGA is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with IShares MSCI and SPDR SSGA

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

The idea behind iShares MSCI KLD and SPDR SSGA Gender 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.