Correlation Between SPDR FTSE and SPDR MSCI

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

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

Diversification Opportunities for SPDR FTSE and SPDR MSCI

0.66

Correlation Coefficient

SPDR FTSE  SPDR MSCI

Poor diversification

The 3 months correlation between SPDR and SPDR is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding SPDR FTSE UK 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 SPDR FTSE 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 FTSE UK 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 SPDR FTSE i.e., SPDR FTSE and SPDR MSCI go up and down completely randomly.

Pair Corralation between SPDR FTSE and SPDR MSCI

Assuming the 90 days trading horizon SPDR FTSE is expected to generate 2.29 times less return on investment than SPDR MSCI. But when comparing it to its historical volatility, SPDR FTSE UK is 1.5 times less risky than SPDR MSCI. It trades about 0.21 of its potential returns per unit of risk. SPDR MSCI Europe is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest  4,564  in SPDR MSCI Europe on December 20, 2024 and sell it today you would earn a total of  878.00  from holding SPDR MSCI Europe or generate 19.24% return on investment over 90 days.

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

SPDR FTSE UK  vs.  SPDR MSCI Europe

SPDR FTSE UK

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR FTSE UK are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, SPDR FTSE may actually be approaching a critical reversion point that can send shares even higher in April 2025.

SPDR MSCI Europe

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR MSCI Europe are ranked lower than 25 (%) 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 SPDR FTSE and SPDR MSCI

The main advantage of trading using opposite SPDR FTSE and SPDR MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR FTSE 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 SPDR FTSE UK 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.