Correlation Between SPDR SP and Franklin MSCI

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

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

Diversification Opportunities for SPDR SP and Franklin MSCI

0.34

Correlation Coefficient

SPDR SP  Franklin MSCI

Weak diversification

The 3 months correlation between SPDR and Franklin is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Materials and Franklin MSCI Emerging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin MSCI Emerging 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 Materials are associated (or correlated) with Franklin MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin MSCI Emerging has no effect on the direction of SPDR SP i.e., SPDR SP and Franklin MSCI go up and down completely randomly.

Pair Corralation between SPDR SP and Franklin MSCI

Assuming the 90 days trading horizon SPDR SP is expected to generate 2.3 times less return on investment than Franklin MSCI. But when comparing it to its historical volatility, SPDR SP Materials is 1.13 times less risky than Franklin MSCI. It trades about 0.04 of its potential returns per unit of risk. Franklin MSCI Emerging is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,763  in Franklin MSCI Emerging on December 25, 2024 and sell it today you would earn a total of  142.00  from holding Franklin MSCI Emerging or generate 5.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

SPDR SP Materials  vs.  Franklin MSCI Emerging

SPDR SP Materials

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Materials are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, SPDR SP is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Franklin MSCI Emerging

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin MSCI Emerging are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Franklin MSCI is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with SPDR SP and Franklin MSCI

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

The idea behind SPDR SP Materials and Franklin 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.