Correlation Between IShares MSCI and SPDR SSGA

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

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

Diversification Opportunities for IShares MSCI and SPDR SSGA

0.96

Correlation Coefficient

IShares MSCI  SPDR SSGA

Almost no diversification

The 3 months correlation between IShares and SPDR is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI USA and SPDR SSGA Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SSGA Sector 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 USA are associated (or correlated) with SPDR SSGA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SSGA Sector has no effect on the direction of IShares MSCI i.e., IShares MSCI and SPDR SSGA go up and down completely randomly.

Pair Corralation between IShares MSCI and SPDR SSGA

Given the investment horizon of 90 days iShares MSCI USA is expected to generate 1.51 times more return on investment than SPDR SSGA. However, IShares MSCI is 1.51 times more volatile than SPDR SSGA Sector. It trades about 0.23 of its potential returns per unit of risk. SPDR SSGA Sector is currently generating about 0.21 per unit of risk. If you would invest  6,326  in iShares MSCI USA on September 2, 2024 and sell it today you would earn a total of  1,042  from holding iShares MSCI USA or generate 16.47% 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 USA  vs.  SPDR SSGA Sector

iShares MSCI USA

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI USA are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, IShares MSCI reported solid returns over the last few months and may actually be approaching a breakup point.

SPDR SSGA Sector

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SSGA Sector are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, SPDR SSGA may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares MSCI and SPDR SSGA

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

The idea behind iShares MSCI USA and SPDR SSGA Sector 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.