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 World and SPDR MSCI World, 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

0.94

Correlation Coefficient

IShares MSCI  SPDR MSCI

Almost no diversification

The 3 months correlation between IShares and SPDR is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI World and SPDR MSCI World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR MSCI World 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 World 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 World 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

Assuming the 90 days trading horizon IShares MSCI is expected to generate 2.26 times less return on investment than SPDR MSCI. But when comparing it to its historical volatility, iShares MSCI World is 1.5 times less risky than SPDR MSCI. It trades about 0.19 of its potential returns per unit of risk. SPDR MSCI World is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  6,559  in SPDR MSCI World on September 23, 2024 and sell it today you would earn a total of  1,329  from holding SPDR MSCI World or generate 20.26% return on investment over 90 days.

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

iShares MSCI World  vs.  SPDR MSCI World

iShares MSCI World

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI World are ranked lower than 14 (%) 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.

SPDR MSCI World

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR MSCI World are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, SPDR MSCI unveiled solid returns over the last few months and may actually be approaching a breakup point.

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 World and SPDR MSCI World 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.