Correlation Between SPDR MSCI and BB Biotech

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

Diversification Opportunities for SPDR MSCI and BB Biotech

-0.35

Correlation Coefficient

SPDR MSCI  BB Biotech

Very good diversification

The 3 months correlation between SPDR and BION is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding SPDR MSCI Europe and BB Biotech AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BB Biotech AG 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 BB Biotech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BB Biotech AG has no effect on the direction of SPDR MSCI i.e., SPDR MSCI and BB Biotech go up and down completely randomly.

Pair Corralation between SPDR MSCI and BB Biotech

Assuming the 90 days trading horizon SPDR MSCI Europe is expected to generate 0.86 times more return on investment than BB Biotech. However, SPDR MSCI Europe is 1.17 times less risky than BB Biotech. It trades about 0.18 of its potential returns per unit of risk. BB Biotech AG is currently generating about -0.06 per unit of risk. If you would invest  17,400  in SPDR MSCI Europe on December 28, 2024 and sell it today you would earn a total of  2,460  from holding SPDR MSCI Europe or generate 14.14% 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.  BB Biotech AG

SPDR MSCI Europe

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR MSCI Europe are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, SPDR MSCI showed solid returns over the last few months and may actually be approaching a breakup point.

BB Biotech AG

Risk-Adjusted Performance

Very Weak

Over the last 90 days BB Biotech AG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, BB Biotech 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 BB Biotech

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

The idea behind SPDR MSCI Europe and BB Biotech AG 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.