Correlation Between IShares MSCI and SPDR Portfolio

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

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

Diversification Opportunities for IShares MSCI and SPDR Portfolio

0.85

Correlation Coefficient

IShares MSCI  SPDR Portfolio

Very poor diversification

The 3 months correlation between IShares and SPDR is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI USA and SPDR Portfolio SP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Portfolio SP 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 USA are associated (or correlated) with SPDR Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Portfolio SP has no effect on the direction of IShares MSCI i.e., IShares MSCI and SPDR Portfolio go up and down completely randomly.

Pair Corralation between IShares MSCI and SPDR Portfolio

Given the investment horizon of 90 days iShares MSCI USA is expected to generate 1.03 times more return on investment than SPDR Portfolio. However, IShares MSCI is 1.03 times more volatile than SPDR Portfolio SP. It trades about -0.01 of its potential returns per unit of risk. SPDR Portfolio SP is currently generating about -0.1 per unit of risk. If you would invest  20,735  in iShares MSCI USA on December 28, 2024 and sell it today you would lose (253.00) from holding iShares MSCI USA or give up 1.22% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.36%
Values	Daily Returns

iShares MSCI USA  vs.  SPDR Portfolio SP

iShares MSCI USA

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares MSCI USA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, IShares MSCI is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

SPDR Portfolio SP

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR Portfolio SP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Etf's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the Exchange Traded Fund stockholders.

Pair Trading with IShares MSCI and SPDR Portfolio

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

The idea behind iShares MSCI USA and SPDR Portfolio SP 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 Transaction History module to view history of all your transactions and understand their impact on performance.