Correlation Between FlexShares STOXX and SPDR Portfolio

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

By analyzing existing cross correlation between FlexShares STOXX Global and SPDR Portfolio MSCI, you can compare the effects of market volatilities on FlexShares STOXX and SPDR Portfolio 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 FlexShares STOXX with a short position of SPDR Portfolio. Check out your portfolio center. Please also check ongoing floating volatility patterns of FlexShares STOXX and SPDR Portfolio.

Diversification Opportunities for FlexShares STOXX and SPDR Portfolio

0.87

Correlation Coefficient

FlexShares STOXX  SPDR Portfolio

Very poor diversification

The 3 months correlation between FlexShares and SPDR is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding FlexShares STOXX Global and SPDR Portfolio MSCI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Portfolio MSCI and FlexShares STOXX 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 FlexShares STOXX Global are associated (or correlated) with SPDR Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Portfolio MSCI has no effect on the direction of FlexShares STOXX i.e., FlexShares STOXX and SPDR Portfolio go up and down completely randomly.

Pair Corralation between FlexShares STOXX and SPDR Portfolio

Given the investment horizon of 90 days FlexShares STOXX Global is expected to generate 0.91 times more return on investment than SPDR Portfolio. However, FlexShares STOXX Global is 1.09 times less risky than SPDR Portfolio. It trades about 0.05 of its potential returns per unit of risk. SPDR Portfolio MSCI is currently generating about 0.0 per unit of risk. If you would invest  16,852  in FlexShares STOXX Global on December 28, 2024 and sell it today you would earn a total of  381.30  from holding FlexShares STOXX Global or generate 2.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.36%
Values	Daily Returns

FlexShares STOXX Global  vs.  SPDR Portfolio MSCI

FlexShares STOXX Global

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in FlexShares STOXX Global are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, FlexShares STOXX is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

SPDR Portfolio MSCI

Risk-Adjusted Performance

Very Weak

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

Pair Trading with FlexShares STOXX and SPDR Portfolio

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

The idea behind FlexShares STOXX Global and SPDR Portfolio MSCI 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.