Correlation Between IShares UK and SPDR MSCI

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

Diversification Opportunities for IShares UK and SPDR MSCI

0.73

Correlation Coefficient

IShares UK  SPDR MSCI

Poor diversification

The 3 months correlation between IShares and SPDR is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding iShares UK Property and SPDR MSCI Europe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR MSCI Europe and IShares UK 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 UK Property 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 Europe has no effect on the direction of IShares UK i.e., IShares UK and SPDR MSCI go up and down completely randomly.

Pair Corralation between IShares UK and SPDR MSCI

Assuming the 90 days trading horizon iShares UK Property is expected to under-perform the SPDR MSCI. But the etf apears to be less risky and, when comparing its historical volatility, iShares UK Property is 1.04 times less risky than SPDR MSCI. The etf trades about -0.23 of its potential returns per unit of risk. The SPDR MSCI Europe is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  28,615  in SPDR MSCI Europe on September 14, 2024 and sell it today you would lose (325.00) from holding SPDR MSCI Europe or give up 1.14% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

iShares UK Property  vs.  SPDR MSCI Europe

iShares UK Property

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares UK Property has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Etf's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the fund sophisticated investors.

SPDR MSCI Europe

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR MSCI Europe has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, SPDR MSCI is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with IShares UK and SPDR MSCI

The main advantage of trading using opposite IShares UK and SPDR MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares UK 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 UK Property and SPDR MSCI Europe 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.