Correlation Between SPDR Dow and IShares MSCI

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

Diversification Opportunities for SPDR Dow and IShares MSCI

0.2

Correlation Coefficient

SPDR Dow  IShares MSCI

Modest diversification

The 3 months correlation between SPDR and IShares is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Dow Jones and iShares MSCI EM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI EM and SPDR Dow 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 Dow Jones 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 EM has no effect on the direction of SPDR Dow i.e., SPDR Dow and IShares MSCI go up and down completely randomly.

Pair Corralation between SPDR Dow and IShares MSCI

Assuming the 90 days trading horizon SPDR Dow Jones is expected to generate 0.88 times more return on investment than IShares MSCI. However, SPDR Dow Jones is 1.13 times less risky than IShares MSCI. It trades about 0.22 of its potential returns per unit of risk. iShares MSCI EM is currently generating about 0.13 per unit of risk. If you would invest  37,184  in SPDR Dow Jones on September 15, 2024 and sell it today you would earn a total of  4,756  from holding SPDR Dow Jones or generate 12.79% return on investment over 90 days.

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

SPDR Dow Jones  vs.  iShares MSCI EM

SPDR Dow Jones

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Dow Jones are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, SPDR Dow may actually be approaching a critical reversion point that can send shares even higher in January 2025.

iShares MSCI EM

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI EM are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, IShares MSCI may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with SPDR Dow and IShares MSCI

The main advantage of trading using opposite SPDR Dow and IShares MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR Dow 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 Dow Jones and iShares MSCI EM 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.