Correlation Between IShares MSCI and SPDR SP

Can any of the company-specific risk be diversified away by investing in both IShares MSCI and SPDR SP 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 SP 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 SP 500, you can compare the effects of market volatilities on IShares MSCI and SPDR SP 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 SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and SPDR SP.

Diversification Opportunities for IShares MSCI and SPDR SP

0.96

Correlation Coefficient

IShares MSCI  SPDR SP

Almost no diversification

The 3 months correlation between IShares and SPDR is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI KLD and SPDR SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP 500 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 SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP 500 has no effect on the direction of IShares MSCI i.e., IShares MSCI and SPDR SP go up and down completely randomly.

Pair Corralation between IShares MSCI and SPDR SP

Considering the 90-day investment horizon iShares MSCI KLD is expected to generate 1.06 times more return on investment than SPDR SP. However, IShares MSCI is 1.06 times more volatile than SPDR SP 500. It trades about 0.2 of its potential returns per unit of risk. SPDR SP 500 is currently generating about 0.17 per unit of risk. If you would invest  10,583  in iShares MSCI KLD on September 13, 2024 and sell it today you would earn a total of  988.00  from holding iShares MSCI KLD or generate 9.34% return on investment over 90 days.

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

iShares MSCI KLD  vs.  SPDR SP 500

iShares MSCI KLD

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI KLD are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, IShares MSCI may actually be approaching a critical reversion point that can send shares even higher in January 2025.

SPDR SP 500

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP 500 are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares MSCI and SPDR SP

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

The idea behind iShares MSCI KLD and SPDR SP 500 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.