Correlation Between IShares MSCI and SPDR Dow

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

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

Diversification Opportunities for IShares MSCI and SPDR Dow

-0.57

Correlation Coefficient

IShares MSCI  SPDR Dow

Excellent diversification

The 3 months correlation between IShares and SPDR is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI Emerging and SPDR Dow Jones in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Dow Jones 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 Emerging are associated (or correlated) with SPDR Dow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Dow Jones has no effect on the direction of IShares MSCI i.e., IShares MSCI and SPDR Dow go up and down completely randomly.

Pair Corralation between IShares MSCI and SPDR Dow

Considering the 90-day investment horizon iShares MSCI Emerging is expected to generate 1.19 times more return on investment than SPDR Dow. However, IShares MSCI is 1.19 times more volatile than SPDR Dow Jones. It trades about -0.04 of its potential returns per unit of risk. SPDR Dow Jones is currently generating about -0.28 per unit of risk. If you would invest  4,259  in iShares MSCI Emerging on September 24, 2024 and sell it today you would lose (32.00) from holding iShares MSCI Emerging or give up 0.75% of portfolio value over 90 days.

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

iShares MSCI Emerging  vs.  SPDR Dow Jones

iShares MSCI Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares MSCI Emerging has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, IShares MSCI is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

SPDR Dow Jones

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Dow Jones are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong forward indicators, SPDR Dow is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares MSCI and SPDR Dow

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

The idea behind iShares MSCI Emerging and SPDR Dow Jones 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.