Correlation Between IShares MSCI and SPDR MSCI

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

Diversification Opportunities for IShares MSCI and SPDR MSCI

0.82

Correlation Coefficient

IShares MSCI  SPDR MSCI

Very poor diversification

The 3 months correlation between IShares and SPDR is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI EAFE and SPDR MSCI Emerging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR MSCI Emerging 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 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 Emerging has no effect on the direction of IShares MSCI i.e., IShares MSCI and SPDR MSCI go up and down completely randomly.

Pair Corralation between IShares MSCI and SPDR MSCI

Considering the 90-day investment horizon iShares MSCI EAFE is expected to under-perform the SPDR MSCI. But the etf apears to be less risky and, when comparing its historical volatility, iShares MSCI EAFE is 1.06 times less risky than SPDR MSCI. The etf trades about -0.12 of its potential returns per unit of risk. The SPDR MSCI Emerging is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  3,262  in SPDR MSCI Emerging on March 22, 2024 and sell it today you would lose (1.00) from holding SPDR MSCI Emerging or give up 0.03% of portfolio value over 90 days.

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

iShares MSCI EAFE  vs.  SPDR MSCI Emerging

iShares MSCI EAFE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares MSCI EAFE has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, IShares MSCI is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

SPDR MSCI Emerging

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR MSCI Emerging are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong primary indicators, SPDR MSCI is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares MSCI and SPDR MSCI

The main advantage of trading using opposite IShares MSCI and SPDR MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares MSCI 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 iShares MSCI EAFE and SPDR MSCI Emerging 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.