Correlation Between SPDR MSCI and Invesco SP

Can any of the company-specific risk be diversified away by investing in both SPDR MSCI and Invesco SP 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 Invesco SP 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 Invesco SP SmallCap, you can compare the effects of market volatilities on SPDR MSCI and Invesco SP 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 Invesco SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR MSCI and Invesco SP.

Diversification Opportunities for SPDR MSCI and Invesco SP

0.9

Correlation Coefficient

SPDR MSCI  Invesco SP

Almost no diversification

The 3 months correlation between SPDR and Invesco is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding SPDR MSCI USA and Invesco SP SmallCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco SP SmallCap 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 Invesco SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco SP SmallCap has no effect on the direction of SPDR MSCI i.e., SPDR MSCI and Invesco SP go up and down completely randomly.

Pair Corralation between SPDR MSCI and Invesco SP

Considering the 90-day investment horizon SPDR MSCI USA is expected to generate 0.69 times more return on investment than Invesco SP. However, SPDR MSCI USA is 1.44 times less risky than Invesco SP. It trades about -0.02 of its potential returns per unit of risk. Invesco SP SmallCap is currently generating about -0.18 per unit of risk. If you would invest  16,155  in SPDR MSCI USA on October 26, 2024 and sell it today you would lose (93.00) from holding SPDR MSCI USA or give up 0.58% of portfolio value over 90 days.

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

SPDR MSCI USA  vs.  Invesco SP SmallCap

SPDR MSCI USA

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR MSCI USA are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. 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.

Invesco SP SmallCap

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP SmallCap are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable essential indicators, Invesco SP is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with SPDR MSCI and Invesco SP

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

The idea behind SPDR MSCI USA and Invesco SP SmallCap 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.