Correlation Between SPDR EURO and ProShares MSCI

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

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

Diversification Opportunities for SPDR EURO and ProShares MSCI

0.74

Correlation Coefficient

SPDR EURO  ProShares MSCI

Poor diversification

The 3 months correlation between SPDR and ProShares is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding SPDR EURO STOXX and ProShares MSCI Europe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares MSCI Europe and SPDR EURO 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 EURO STOXX are associated (or correlated) with ProShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares MSCI Europe has no effect on the direction of SPDR EURO i.e., SPDR EURO and ProShares MSCI go up and down completely randomly.

Pair Corralation between SPDR EURO and ProShares MSCI

Considering the 90-day investment horizon SPDR EURO STOXX is expected to generate 1.26 times more return on investment than ProShares MSCI. However, SPDR EURO is 1.26 times more volatile than ProShares MSCI Europe. It trades about 0.19 of its potential returns per unit of risk. ProShares MSCI Europe is currently generating about 0.02 per unit of risk. If you would invest  4,855  in SPDR EURO STOXX on December 1, 2024 and sell it today you would earn a total of  551.00  from holding SPDR EURO STOXX or generate 11.35% return on investment over 90 days.

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

SPDR EURO STOXX  vs.  ProShares MSCI Europe

SPDR EURO STOXX

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR EURO STOXX are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain technical and fundamental indicators, SPDR EURO may actually be approaching a critical reversion point that can send shares even higher in April 2025.

ProShares MSCI Europe

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares MSCI Europe are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable fundamental indicators, ProShares MSCI 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 EURO and ProShares MSCI

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

The idea behind SPDR EURO STOXX and ProShares 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.