Correlation Between Invesco MSCI and SPDR MSCI

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

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

Diversification Opportunities for Invesco MSCI and SPDR MSCI

-0.12

Correlation Coefficient

Invesco MSCI  SPDR MSCI

Good diversification

The 3 months correlation between Invesco and SPDR is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Invesco MSCI USA and SPDR MSCI Europe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR MSCI Europe and Invesco 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 Invesco MSCI USA are associated (or correlated) with SPDR MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR MSCI Europe has no effect on the direction of Invesco MSCI i.e., Invesco MSCI and SPDR MSCI go up and down completely randomly.

Pair Corralation between Invesco MSCI and SPDR MSCI

Assuming the 90 days trading horizon Invesco MSCI USA is expected to under-perform the SPDR MSCI. But the etf apears to be less risky and, when comparing its historical volatility, Invesco MSCI USA is 1.21 times less risky than SPDR MSCI. The etf trades about -0.06 of its potential returns per unit of risk. The SPDR MSCI Europe is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  17,360  in SPDR MSCI Europe on December 27, 2024 and sell it today you would earn a total of  2,770  from holding SPDR MSCI Europe or generate 15.96% return on investment over 90 days.

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

Invesco MSCI USA  vs.  SPDR MSCI Europe

Invesco MSCI USA

Risk-Adjusted Performance

Very Weak

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

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR MSCI Europe are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, SPDR MSCI showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Invesco MSCI and SPDR MSCI

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

The idea behind Invesco MSCI USA and SPDR MSCI Europe 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..