Correlation Between SPDR MSCI and SPDR Portfolio

Can any of the company-specific risk be diversified away by investing in both SPDR 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 SPDR 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 SPDR MSCI USA and SPDR Portfolio Corporate, you can compare the effects of market volatilities on SPDR 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 SPDR MSCI with a short position of SPDR Portfolio. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR MSCI and SPDR Portfolio.

Diversification Opportunities for SPDR MSCI and SPDR Portfolio

0.34

Correlation Coefficient

SPDR MSCI  SPDR Portfolio

Weak diversification

The 3 months correlation between SPDR and SPDR is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding SPDR MSCI USA and SPDR Portfolio Corporate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Portfolio Corporate 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 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 Corporate has no effect on the direction of SPDR MSCI i.e., SPDR MSCI and SPDR Portfolio go up and down completely randomly.

Pair Corralation between SPDR MSCI and SPDR Portfolio

Considering the 90-day investment horizon SPDR MSCI is expected to generate 5.2 times less return on investment than SPDR Portfolio. In addition to that, SPDR MSCI is 2.29 times more volatile than SPDR Portfolio Corporate. It trades about 0.01 of its total potential returns per unit of risk. SPDR Portfolio Corporate is currently generating about 0.1 per unit of volatility. If you would invest  2,843  in SPDR Portfolio Corporate on December 25, 2024 and sell it today you would earn a total of  52.00  from holding SPDR Portfolio Corporate or generate 1.83% return on investment over 90 days.

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

SPDR MSCI USA  vs.  SPDR Portfolio Corporate

SPDR MSCI USA

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR MSCI USA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, SPDR MSCI is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

SPDR Portfolio Corporate

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Portfolio Corporate are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental drivers, SPDR Portfolio is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with SPDR MSCI and SPDR Portfolio

The main advantage of trading using opposite SPDR MSCI and SPDR Portfolio positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR 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 SPDR MSCI USA and SPDR Portfolio Corporate 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.