Correlation Between SPDR MSCI and Lyxor MSCI

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

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

Diversification Opportunities for SPDR MSCI and Lyxor MSCI

-0.05

Correlation Coefficient

SPDR MSCI  Lyxor MSCI

Good diversification

The 3 months correlation between SPDR and Lyxor is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding SPDR MSCI Europe and Lyxor MSCI China in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lyxor MSCI China 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 Europe are associated (or correlated) with Lyxor MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lyxor MSCI China has no effect on the direction of SPDR MSCI i.e., SPDR MSCI and Lyxor MSCI go up and down completely randomly.

Pair Corralation between SPDR MSCI and Lyxor MSCI

Assuming the 90 days trading horizon SPDR MSCI Europe is expected to under-perform the Lyxor MSCI. In addition to that, SPDR MSCI is 1.02 times more volatile than Lyxor MSCI China. It trades about -0.02 of its total potential returns per unit of risk. Lyxor MSCI China is currently generating about 0.13 per unit of volatility. If you would invest  9,063  in Lyxor MSCI China on December 29, 2024 and sell it today you would earn a total of  1,196  from holding Lyxor MSCI China or generate 13.2% return on investment over 90 days.

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

SPDR MSCI Europe  vs.  Lyxor MSCI China

SPDR MSCI Europe

Risk-Adjusted Performance

Very Weak

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

Lyxor MSCI China

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lyxor MSCI China are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak forward indicators, Lyxor MSCI sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SPDR MSCI and Lyxor MSCI

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

The idea behind SPDR MSCI Europe and Lyxor MSCI China 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.