Correlation Between SPDR MSCI and SPDR SSgA

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

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

Diversification Opportunities for SPDR MSCI and SPDR SSgA

0.18

Correlation Coefficient

SPDR MSCI  SPDR SSgA

Average diversification

The 3 months correlation between SPDR and SPDR is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding SPDR MSCI Emerging and SPDR SSgA Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SSgA Income and SPDR 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 SPDR MSCI Emerging are associated (or correlated) with SPDR SSgA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SSgA Income has no effect on the direction of SPDR MSCI i.e., SPDR MSCI and SPDR SSgA go up and down completely randomly.

Pair Corralation between SPDR MSCI and SPDR SSgA

Given the investment horizon of 90 days SPDR MSCI Emerging is expected to generate 1.69 times more return on investment than SPDR SSgA. However, SPDR MSCI is 1.69 times more volatile than SPDR SSgA Income. It trades about 0.05 of its potential returns per unit of risk. SPDR SSgA Income is currently generating about 0.08 per unit of risk. If you would invest  5,140  in SPDR MSCI Emerging on September 19, 2024 and sell it today you would earn a total of  866.00  from holding SPDR MSCI Emerging or generate 16.85% return on investment over 90 days.

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

SPDR MSCI Emerging  vs.  SPDR SSgA Income

SPDR MSCI Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

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

SPDR SSgA Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR SSgA Income has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward-looking signals, SPDR SSgA is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with SPDR MSCI and SPDR SSgA

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

The idea behind SPDR MSCI Emerging and SPDR SSgA Income 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.