Correlation Between SPDR SP and Vanguard MSCI

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

By analyzing existing cross correlation between SPDR SP 500 and Vanguard MSCI International, you can compare the effects of market volatilities on SPDR SP and Vanguard 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 SP with a short position of Vanguard MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and Vanguard MSCI.

Diversification Opportunities for SPDR SP and Vanguard MSCI

0.9

Correlation Coefficient

SPDR SP  Vanguard MSCI

Almost no diversification

The 3 months correlation between SPDR and Vanguard is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 500 and Vanguard MSCI International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard MSCI Intern and SPDR SP 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 SP 500 are associated (or correlated) with Vanguard MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard MSCI Intern has no effect on the direction of SPDR SP i.e., SPDR SP and Vanguard MSCI go up and down completely randomly.

Pair Corralation between SPDR SP and Vanguard MSCI

Assuming the 90 days trading horizon SPDR SP 500 is expected to generate 1.22 times more return on investment than Vanguard MSCI. However, SPDR SP is 1.22 times more volatile than Vanguard MSCI International. It trades about 0.27 of its potential returns per unit of risk. Vanguard MSCI International is currently generating about 0.2 per unit of risk. If you would invest  81,673  in SPDR SP 500 on September 4, 2024 and sell it today you would earn a total of  10,967  from holding SPDR SP 500 or generate 13.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.46%
Values	Daily Returns

SPDR SP 500  vs.  Vanguard MSCI International

SPDR SP 500

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP 500 are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Vanguard MSCI Intern

Risk-Adjusted Performance

15 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard MSCI International are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Vanguard MSCI may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with SPDR SP and Vanguard MSCI

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

The idea behind SPDR SP 500 and Vanguard MSCI International 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.