Correlation Between IShares MSCI and SPDR FactSet

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

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

Diversification Opportunities for IShares MSCI and SPDR FactSet

0.82

Correlation Coefficient

IShares MSCI  SPDR FactSet

Very poor diversification

The 3 months correlation between IShares and SPDR is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI Israel and SPDR FactSet Innovative in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR FactSet Innovative 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 Israel are associated (or correlated) with SPDR FactSet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR FactSet Innovative has no effect on the direction of IShares MSCI i.e., IShares MSCI and SPDR FactSet go up and down completely randomly.

Pair Corralation between IShares MSCI and SPDR FactSet

Considering the 90-day investment horizon iShares MSCI Israel is expected to generate 0.75 times more return on investment than SPDR FactSet. However, iShares MSCI Israel is 1.33 times less risky than SPDR FactSet. It trades about -0.01 of its potential returns per unit of risk. SPDR FactSet Innovative is currently generating about -0.06 per unit of risk. If you would invest  7,600  in iShares MSCI Israel on December 29, 2024 and sell it today you would lose (125.00) from holding iShares MSCI Israel or give up 1.64% of portfolio value over 90 days.

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

iShares MSCI Israel  vs.  SPDR FactSet Innovative

iShares MSCI Israel

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares MSCI Israel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable forward indicators, IShares MSCI is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

SPDR FactSet Innovative

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR FactSet Innovative has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Etf's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the ETF venture institutional investors.

Pair Trading with IShares MSCI and SPDR FactSet

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

The idea behind iShares MSCI Israel and SPDR FactSet Innovative 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.