Correlation Between SP Global and MSCI

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Can any of the company-specific risk be diversified away by investing in both SP Global and 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 SP Global and MSCI into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SP Global and MSCI Inc, you can compare the effects of market volatilities on SP Global and 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 SP Global with a short position of MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of SP Global and MSCI.

Diversification Opportunities for SP Global and MSCI

MHLMSCIDiversified AwayMHLMSCIDiversified Away100%
0.75
  Correlation Coefficient

Poor diversification

The 3 months correlation between MHL and MSCI is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding SP Global and MSCI Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MSCI Inc and SP Global 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 SP Global are associated (or correlated) with MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MSCI Inc has no effect on the direction of SP Global i.e., SP Global and MSCI go up and down completely randomly.

Pair Corralation between SP Global and MSCI

Assuming the 90 days horizon SP Global is expected to under-perform the MSCI. But the stock apears to be less risky and, when comparing its historical volatility, SP Global is 1.15 times less risky than MSCI. The stock trades about -0.03 of its potential returns per unit of risk. The MSCI Inc is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  56,284  in MSCI Inc on October 15, 2024 and sell it today you would lose (204.00) from holding MSCI Inc or give up 0.36% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

SP Global  vs.  MSCI Inc

 Performance 
JavaScript chart by amCharts 3.21.15OctNovDec -50510
JavaScript chart by amCharts 3.21.15MHL 3HM
       Timeline  
SP Global 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days SP Global has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, SP Global is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.
JavaScript chart by amCharts 3.21.15NovDecJanDecJan440450460470480490500
MSCI Inc 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days MSCI Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, MSCI is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.
JavaScript chart by amCharts 3.21.15NovDecJanDecJan520530540550560570580590600610

SP Global and MSCI Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-4.23-3.17-2.11-1.040.01.042.113.184.265.33 0.050.100.150.20
JavaScript chart by amCharts 3.21.15MHL 3HM
       Returns  

Pair Trading with SP Global and MSCI

The main advantage of trading using opposite SP Global and MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SP Global position performs unexpectedly, 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 MSCI will offset losses from the drop in MSCI's long position.
The idea behind SP Global and MSCI Inc 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.

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