Correlation Between SPDR MSCI and SPDR Portfolio

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

By analyzing existing cross correlation between SPDR MSCI EAFE and SPDR Portfolio MSCI, you can compare the effects of market volatilities on SPDR MSCI and SPDR Portfolio 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 SPDR Portfolio. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR MSCI and SPDR Portfolio.

Diversification Opportunities for SPDR MSCI and SPDR Portfolio

-0.3

Correlation Coefficient

SPDR MSCI  SPDR Portfolio

Very good diversification

The 3 months correlation between SPDR and SPDR is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding SPDR MSCI EAFE and SPDR Portfolio MSCI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Portfolio MSCI 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 EAFE are associated (or correlated) with SPDR Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Portfolio MSCI has no effect on the direction of SPDR MSCI i.e., SPDR MSCI and SPDR Portfolio go up and down completely randomly.

Pair Corralation between SPDR MSCI and SPDR Portfolio

Given the investment horizon of 90 days SPDR MSCI EAFE is expected to under-perform the SPDR Portfolio. In addition to that, SPDR MSCI is 1.14 times more volatile than SPDR Portfolio MSCI. It trades about -0.06 of its total potential returns per unit of risk. SPDR Portfolio MSCI is currently generating about 0.16 per unit of volatility. If you would invest  6,179  in SPDR Portfolio MSCI on September 5, 2024 and sell it today you would earn a total of  442.00  from holding SPDR Portfolio MSCI or generate 7.15% return on investment over 90 days.

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

SPDR MSCI EAFE  vs.  SPDR Portfolio MSCI

SPDR MSCI EAFE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR MSCI EAFE has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, SPDR MSCI is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

SPDR Portfolio MSCI

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Portfolio MSCI are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain technical and fundamental indicators, SPDR Portfolio may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with SPDR MSCI and SPDR Portfolio

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

The idea behind SPDR MSCI EAFE and SPDR Portfolio MSCI 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.