Correlation Between SPDR MSCI and Invesco SP

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

By analyzing existing cross correlation between SPDR MSCI USA and Invesco SP 100, you can compare the effects of market volatilities on SPDR MSCI and Invesco SP 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 Invesco SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR MSCI and Invesco SP.

Diversification Opportunities for SPDR MSCI and Invesco SP

0.98

Correlation Coefficient

SPDR MSCI  Invesco SP

Almost no diversification

The 3 months correlation between SPDR and Invesco is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding SPDR MSCI USA and Invesco SP 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco SP 100 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 USA are associated (or correlated) with Invesco SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco SP 100 has no effect on the direction of SPDR MSCI i.e., SPDR MSCI and Invesco SP go up and down completely randomly.

Pair Corralation between SPDR MSCI and Invesco SP

Considering the 90-day investment horizon SPDR MSCI is expected to generate 1.19 times less return on investment than Invesco SP. In addition to that, SPDR MSCI is 1.02 times more volatile than Invesco SP 100. It trades about 0.08 of its total potential returns per unit of risk. Invesco SP 100 is currently generating about 0.1 per unit of volatility. If you would invest  8,848  in Invesco SP 100 on February 5, 2024 and sell it today you would earn a total of  346.00  from holding Invesco SP 100 or generate 3.91% return on investment over 90 days.

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

SPDR MSCI USA  vs.  Invesco SP 100

SPDR MSCI USA

Risk-Adjusted Performance

6 of 100

Modest

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

Invesco SP 100

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP 100 are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Invesco SP is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with SPDR MSCI and Invesco SP

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

The idea behind SPDR MSCI USA and Invesco SP 100 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.

Check out your portfolio center.

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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.