Correlation Between SPDR Portfolio and IShares MSCI

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

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

Diversification Opportunities for SPDR Portfolio and IShares MSCI

0.81

Correlation Coefficient

SPDR Portfolio  IShares MSCI

Very poor diversification

The 3 months correlation between SPDR and IShares is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Portfolio Emerging and iShares MSCI Emerging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI Emerging and SPDR Portfolio 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 Portfolio Emerging are associated (or correlated) with IShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MSCI Emerging has no effect on the direction of SPDR Portfolio i.e., SPDR Portfolio and IShares MSCI go up and down completely randomly.

Pair Corralation between SPDR Portfolio and IShares MSCI

Given the investment horizon of 90 days SPDR Portfolio Emerging is expected to under-perform the IShares MSCI. But the etf apears to be less risky and, when comparing its historical volatility, SPDR Portfolio Emerging is 1.04 times less risky than IShares MSCI. The etf trades about -0.34 of its potential returns per unit of risk. The iShares MSCI Emerging is currently generating about -0.15 of returns per unit of risk over similar time horizon. If you would invest  5,751  in iShares MSCI Emerging on October 8, 2024 and sell it today you would lose (137.00) from holding iShares MSCI Emerging or give up 2.38% of portfolio value over 90 days.

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

SPDR Portfolio Emerging  vs.  iShares MSCI Emerging

SPDR Portfolio Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

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

iShares MSCI Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with SPDR Portfolio and IShares MSCI

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

The idea behind SPDR Portfolio Emerging and iShares MSCI Emerging 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.