Correlation Between SPDR MSCI and SPDR Dow

Can any of the company-specific risk be diversified away by investing in both SPDR 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 SPDR 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 SPDR MSCI EM and SPDR Dow Jones, you can compare the effects of market volatilities on SPDR 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 SPDR MSCI with a short position of SPDR Dow. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR MSCI and SPDR Dow.

Diversification Opportunities for SPDR MSCI and SPDR Dow

-0.21

Correlation Coefficient

SPDR MSCI  SPDR Dow

Very good diversification

The 3 months correlation between SPDR and SPDR is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding SPDR MSCI EM 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 SPDR 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 SPDR MSCI EM 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 SPDR MSCI i.e., SPDR MSCI and SPDR Dow go up and down completely randomly.

Pair Corralation between SPDR MSCI and SPDR Dow

Assuming the 90 days trading horizon SPDR MSCI EM is expected to under-perform the SPDR Dow. In addition to that, SPDR MSCI is 1.05 times more volatile than SPDR Dow Jones. It trades about -0.05 of its total potential returns per unit of risk. SPDR Dow Jones is currently generating about -0.01 per unit of volatility. If you would invest  2,994  in SPDR Dow Jones on October 10, 2024 and sell it today you would lose (28.00) from holding SPDR Dow Jones or give up 0.94% of portfolio value over 90 days.

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

SPDR MSCI EM  vs.  SPDR Dow Jones

SPDR MSCI EM

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR MSCI EM has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, SPDR MSCI is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

SPDR Dow Jones

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR Dow Jones has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, SPDR Dow is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with SPDR MSCI and SPDR Dow

The main advantage of trading using opposite SPDR MSCI and SPDR Dow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR 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 SPDR MSCI EM 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.