Correlation Between SPDR SP and Invesco MSCI

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

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

Diversification Opportunities for SPDR SP and Invesco MSCI

-0.42

Correlation Coefficient

SPDR SP  Invesco MSCI

Very good diversification

The 3 months correlation between SPDR and Invesco is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Financials and Invesco MSCI Japan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco MSCI Japan 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 Financials are associated (or correlated) with Invesco MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco MSCI Japan has no effect on the direction of SPDR SP i.e., SPDR SP and Invesco MSCI go up and down completely randomly.

Pair Corralation between SPDR SP and Invesco MSCI

Assuming the 90 days trading horizon SPDR SP Financials is expected to generate 0.88 times more return on investment than Invesco MSCI. However, SPDR SP Financials is 1.14 times less risky than Invesco MSCI. It trades about 0.14 of its potential returns per unit of risk. Invesco MSCI Japan is currently generating about 0.01 per unit of risk. If you would invest  4,766  in SPDR SP Financials on September 29, 2024 and sell it today you would earn a total of  919.00  from holding SPDR SP Financials or generate 19.28% return on investment over 90 days.

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

SPDR SP Financials  vs.  Invesco MSCI Japan

SPDR SP Financials

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Financials are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Invesco MSCI Japan

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco MSCI Japan has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Invesco MSCI is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with SPDR SP and Invesco MSCI

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

The idea behind SPDR SP Financials and Invesco MSCI Japan 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.