Correlation Between IShares MSCI and SPDR Portfolio

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

By analyzing existing cross correlation between iShares MSCI China and SPDR Portfolio Emerging, you can compare the effects of market volatilities on IShares MSCI and SPDR Portfolio 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 Portfolio. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and SPDR Portfolio.

Diversification Opportunities for IShares MSCI and SPDR Portfolio

0.87

Correlation Coefficient

IShares MSCI  SPDR Portfolio

Very poor diversification

The 3 months correlation between IShares and SPDR is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI China and SPDR Portfolio Emerging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Portfolio 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 China are associated (or correlated) with SPDR Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Portfolio Emerging has no effect on the direction of IShares MSCI i.e., IShares MSCI and SPDR Portfolio go up and down completely randomly.

Pair Corralation between IShares MSCI and SPDR Portfolio

Given the investment horizon of 90 days iShares MSCI China is expected to under-perform the SPDR Portfolio. In addition to that, IShares MSCI is 1.83 times more volatile than SPDR Portfolio Emerging. It trades about -0.02 of its total potential returns per unit of risk. SPDR Portfolio Emerging is currently generating about 0.01 per unit of volatility. If you would invest  3,434  in SPDR Portfolio Emerging on January 20, 2024 and sell it today you would earn a total of  115.00  from holding SPDR Portfolio Emerging or generate 3.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.79%
Values	Daily Returns

iShares MSCI China  vs.  SPDR Portfolio Emerging

iShares MSCI China

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI China are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak technical indicators, IShares MSCI may actually be approaching a critical reversion point that can send shares even higher in May 2024.

SPDR Portfolio Emerging

Risk-Adjusted Performance

7 of 100

OK

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

Pair Trading with IShares MSCI and SPDR Portfolio

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

The idea behind iShares MSCI China and SPDR Portfolio 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..