Correlation Between Vanguard and SPDR MSCI

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

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

Diversification Opportunities for Vanguard and SPDR MSCI

0.9

Correlation Coefficient

Vanguard  SPDR MSCI

Almost no diversification

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

Pair Corralation between Vanguard and SPDR MSCI

Assuming the 90 days trading horizon Vanguard is expected to generate 4.71 times less return on investment than SPDR MSCI. But when comparing it to its historical volatility, Vanguard SP 500 is 1.97 times less risky than SPDR MSCI. It trades about 0.07 of its potential returns per unit of risk. SPDR MSCI World is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  17,548  in SPDR MSCI World on September 28, 2024 and sell it today you would earn a total of  622.00  from holding SPDR MSCI World or generate 3.54% return on investment over 90 days.

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

Vanguard SP 500  vs.  SPDR MSCI World

Vanguard SP 500

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard SP 500 are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Vanguard may actually be approaching a critical reversion point that can send shares even higher in January 2025.

SPDR MSCI World

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR MSCI World are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, SPDR MSCI may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vanguard and SPDR MSCI

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

The idea behind Vanguard SP 500 and SPDR MSCI World 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .