Correlation Between IShares MSCI and SPDR SP
Can any of the company-specific risk be diversified away by investing in both IShares MSCI and SPDR 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 IShares MSCI and SPDR SP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares MSCI EAFE and SPDR SP 500, you can compare the effects of market volatilities on IShares MSCI and SPDR 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 IShares MSCI with a short position of SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and SPDR SP.
Diversification Opportunities for IShares MSCI and SPDR SP
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between IShares and SPDR is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI EAFE and SPDR SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP 500 and IShares 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 iShares MSCI EAFE are associated (or correlated) with SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP 500 has no effect on the direction of IShares MSCI i.e., IShares MSCI and SPDR SP go up and down completely randomly.
Pair Corralation between IShares MSCI and SPDR SP
Considering the 90-day investment horizon iShares MSCI EAFE is expected to under-perform the SPDR SP. In addition to that, IShares MSCI is 1.06 times more volatile than SPDR SP 500. It trades about -0.01 of its total potential returns per unit of risk. SPDR SP 500 is currently generating about 0.0 per unit of volatility. If you would invest 50,442 in SPDR SP 500 on January 27, 2024 and sell it today you would lose (93.00) from holding SPDR SP 500 or give up 0.18% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 97.78% |
| Values | Daily Returns |
iShares MSCI EAFE vs. SPDR SP 500
Performance |
| Timeline |
| iShares MSCI EAFE |
| SPDR SP 500 |
IShares MSCI and SPDR SP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares MSCI and SPDR SP
The main advantage of trading using opposite IShares MSCI and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares MSCI position performs unexpectedly, SPDR 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 SPDR SP will offset losses from the drop in SPDR SP's long position.| IShares MSCI vs. Northern Lights | IShares MSCI vs. Dimensional International High | IShares MSCI vs. Matthews China Discovery | IShares MSCI vs. Davis Select International |
| SPDR SP vs. Northern Lights | SPDR SP vs. Dimensional International High | SPDR SP vs. Matthews China Discovery | SPDR SP vs. Davis Select International |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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