Correlation Between IShares SP and SPDR MSCI

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

By analyzing existing cross correlation between iShares SP 500 and SPDR MSCI Europe, you can compare the effects of market volatilities on IShares SP 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 IShares SP with a short position of SPDR MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares SP and SPDR MSCI.

Diversification Opportunities for IShares SP and SPDR MSCI

-0.26

Correlation Coefficient

IShares SP  SPDR MSCI

Very good diversification

The 3 months correlation between IShares and SPDR is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding iShares SP 500 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 IShares SP 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 SP 500 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 IShares SP i.e., IShares SP and SPDR MSCI go up and down completely randomly.

Pair Corralation between IShares SP and SPDR MSCI

Assuming the 90 days trading horizon iShares SP 500 is expected to under-perform the SPDR MSCI. But the etf apears to be less risky and, when comparing its historical volatility, iShares SP 500 is 1.01 times less risky than SPDR MSCI. The etf trades about -0.07 of its potential returns per unit of risk. The SPDR MSCI Europe is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  28,790  in SPDR MSCI Europe on December 30, 2024 and sell it today you would earn a total of  1,780  from holding SPDR MSCI Europe or generate 6.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

iShares SP 500  vs.  SPDR MSCI Europe

iShares SP 500

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, IShares SP 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

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR MSCI Europe are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, SPDR MSCI may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with IShares SP and SPDR MSCI

The main advantage of trading using opposite IShares SP and SPDR MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares SP 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 iShares SP 500 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.