Correlation Between SPDR MSCI and SPDR Russell

Can any of the company-specific risk be diversified away by investing in both SPDR MSCI and SPDR Russell 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 Russell 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 Russell 2000, you can compare the effects of market volatilities on SPDR MSCI and SPDR Russell 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 Russell. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR MSCI and SPDR Russell.

Diversification Opportunities for SPDR MSCI and SPDR Russell

-0.65

Correlation Coefficient

SPDR MSCI  SPDR Russell

Excellent diversification

The 3 months correlation between SPDR and SPDR is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding SPDR MSCI EM and SPDR Russell 2000 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Russell 2000 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 Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Russell 2000 has no effect on the direction of SPDR MSCI i.e., SPDR MSCI and SPDR Russell go up and down completely randomly.

Pair Corralation between SPDR MSCI and SPDR Russell

Assuming the 90 days trading horizon SPDR MSCI is expected to generate 1.62 times less return on investment than SPDR Russell. But when comparing it to its historical volatility, SPDR MSCI EM is 1.35 times less risky than SPDR Russell. It trades about 0.06 of its potential returns per unit of risk. SPDR Russell 2000 is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  4,544  in SPDR Russell 2000 on October 5, 2024 and sell it today you would earn a total of  1,348  from holding SPDR Russell 2000 or generate 29.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.68%
Values	Daily Returns

SPDR MSCI EM  vs.  SPDR Russell 2000

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 current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

SPDR Russell 2000

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR Russell 2000 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, SPDR Russell 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 Russell

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

The idea behind SPDR MSCI EM and SPDR Russell 2000 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.