Correlation Between SPDR Barclays and SPDR MSCI

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

By analyzing existing cross correlation between SPDR Barclays 10 and SPDR MSCI Europe, you can compare the effects of market volatilities on SPDR Barclays 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 SPDR Barclays with a short position of SPDR MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR Barclays and SPDR MSCI.

Diversification Opportunities for SPDR Barclays and SPDR MSCI

0.64

Correlation Coefficient

SPDR Barclays  SPDR MSCI

Poor diversification

The 3 months correlation between SPDR and SPDR is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Barclays 10 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 SPDR Barclays 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 Barclays 10 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 SPDR Barclays i.e., SPDR Barclays and SPDR MSCI go up and down completely randomly.

Pair Corralation between SPDR Barclays and SPDR MSCI

Assuming the 90 days trading horizon SPDR Barclays 10 is expected to under-perform the SPDR MSCI. In addition to that, SPDR Barclays is 1.19 times more volatile than SPDR MSCI Europe. It trades about -0.08 of its total potential returns per unit of risk. SPDR MSCI Europe is currently generating about -0.01 per unit of volatility. If you would invest  1,050  in SPDR MSCI Europe on September 5, 2024 and sell it today you would lose (8.00) from holding SPDR MSCI Europe or give up 0.76% of portfolio value over 90 days.

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

SPDR Barclays 10  vs.  SPDR MSCI Europe

SPDR Barclays 10

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR Barclays 10 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, SPDR Barclays is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private 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 comparatively stable basic indicators, SPDR MSCI is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with SPDR Barclays and SPDR MSCI

The main advantage of trading using opposite SPDR Barclays and SPDR MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR Barclays 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 SPDR Barclays 10 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.