Correlation Between SPDR Portfolio and SPDR MSCI

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

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

Diversification Opportunities for SPDR Portfolio and SPDR MSCI

0.99

Correlation Coefficient

SPDR Portfolio  SPDR MSCI

No risk reduction

The 3 months correlation between SPDR and SPDR is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Portfolio Europe and SPDR MSCI EAFE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR MSCI EAFE 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 Europe are associated (or correlated) with SPDR MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR MSCI EAFE has no effect on the direction of SPDR Portfolio i.e., SPDR Portfolio and SPDR MSCI go up and down completely randomly.

Pair Corralation between SPDR Portfolio and SPDR MSCI

Given the investment horizon of 90 days SPDR Portfolio Europe is expected to under-perform the SPDR MSCI. In addition to that, SPDR Portfolio is 1.11 times more volatile than SPDR MSCI EAFE. It trades about -0.1 of its total potential returns per unit of risk. SPDR MSCI EAFE is currently generating about -0.1 per unit of volatility. If you would invest  7,928  in SPDR MSCI EAFE on September 17, 2024 and sell it today you would lose (368.00) from holding SPDR MSCI EAFE or give up 4.64% of portfolio value over 90 days.

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

SPDR Portfolio Europe  vs.  SPDR MSCI EAFE

SPDR Portfolio Europe

Risk-Adjusted Performance

0 of 100

Very Weak

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

SPDR MSCI EAFE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR MSCI EAFE has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, SPDR MSCI is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with SPDR Portfolio and SPDR MSCI

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

The idea behind SPDR Portfolio Europe and SPDR MSCI EAFE 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .