Correlation Between IShares MSCI and SPDR BOFA

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

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

Diversification Opportunities for IShares MSCI and SPDR BOFA

0.16

Correlation Coefficient

IShares MSCI  SPDR BOFA

Average diversification

The 3 months correlation between IShares and SPDR is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI Emerging and SPDR BOFA MERRILL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR BOFA MERRILL 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 Emerging are associated (or correlated) with SPDR BOFA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR BOFA MERRILL has no effect on the direction of IShares MSCI i.e., IShares MSCI and SPDR BOFA go up and down completely randomly.

Pair Corralation between IShares MSCI and SPDR BOFA

Given the investment horizon of 90 days IShares MSCI is expected to generate 6.9 times less return on investment than SPDR BOFA. But when comparing it to its historical volatility, iShares MSCI Emerging is 1.05 times less risky than SPDR BOFA. It trades about 0.03 of its potential returns per unit of risk. SPDR BOFA MERRILL is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  1,540  in SPDR BOFA MERRILL on August 30, 2024 and sell it today you would earn a total of  301.00  from holding SPDR BOFA MERRILL or generate 19.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	93.65%
Values	Daily Returns

iShares MSCI Emerging  vs.  SPDR BOFA MERRILL

iShares MSCI Emerging

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI Emerging are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable essential indicators, IShares MSCI is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

SPDR BOFA MERRILL

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR BOFA MERRILL are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, SPDR BOFA reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares MSCI and SPDR BOFA

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

The idea behind iShares MSCI Emerging and SPDR BOFA MERRILL 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 Search module to search for actively traded equities including funds and ETFs from over 30 global markets.