Correlation Between SPDR MSCI and IShares Russell

Can any of the company-specific risk be diversified away by investing in both SPDR MSCI and IShares Russell 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 IShares Russell 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 iShares Russell 1000, you can compare the effects of market volatilities on SPDR MSCI and IShares Russell 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 IShares Russell. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR MSCI and IShares Russell.

Diversification Opportunities for SPDR MSCI and IShares Russell

0.94

Correlation Coefficient

SPDR MSCI  IShares Russell

Almost no diversification

The 3 months correlation between SPDR and IShares is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding SPDR MSCI USA and iShares Russell 1000 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Russell 1000 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 IShares Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Russell 1000 has no effect on the direction of SPDR MSCI i.e., SPDR MSCI and IShares Russell go up and down completely randomly.

Pair Corralation between SPDR MSCI and IShares Russell

Considering the 90-day investment horizon SPDR MSCI is expected to generate 1.58 times less return on investment than IShares Russell. But when comparing it to its historical volatility, SPDR MSCI USA is 1.02 times less risky than IShares Russell. It trades about 0.08 of its potential returns per unit of risk. iShares Russell 1000 is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  16,449  in iShares Russell 1000 on February 5, 2024 and sell it today you would earn a total of  863.00  from holding iShares Russell 1000 or generate 5.25% 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.  iShares Russell 1000

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.

iShares Russell 1000

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Russell 1000 are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, IShares Russell is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with SPDR MSCI and IShares Russell

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

The idea behind SPDR MSCI USA and iShares Russell 1000 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.