Correlation Between SPDR MSCI and IShares MSCI

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

Diversification Opportunities for SPDR MSCI and IShares MSCI

0.95

Correlation Coefficient

SPDR MSCI  IShares MSCI

Almost no diversification

The 3 months correlation between SPDR and IShares is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding SPDR MSCI USA and iShares MSCI EAFE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI EAFE 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 MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MSCI EAFE has no effect on the direction of SPDR MSCI i.e., SPDR MSCI and IShares MSCI go up and down completely randomly.

Pair Corralation between SPDR MSCI and IShares MSCI

Considering the 90-day investment horizon SPDR MSCI USA is expected to under-perform the IShares MSCI. But the etf apears to be less risky and, when comparing its historical volatility, SPDR MSCI USA is 1.22 times less risky than IShares MSCI. The etf trades about -0.07 of its potential returns per unit of risk. The iShares MSCI EAFE is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  7,872  in iShares MSCI EAFE on February 4, 2024 and sell it today you would earn a total of  20.00  from holding iShares MSCI EAFE or generate 0.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.65%
Values	Daily Returns

SPDR MSCI USA  vs.  iShares MSCI EAFE

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 MSCI EAFE

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI EAFE are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, IShares MSCI is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with SPDR MSCI and IShares MSCI

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

The idea behind SPDR MSCI USA and iShares MSCI EAFE 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.