Correlation Between SPDR MSCI and Lyxor UCITS

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

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

Diversification Opportunities for SPDR MSCI and Lyxor UCITS

-0.61

Correlation Coefficient

SPDR MSCI  Lyxor UCITS

Excellent diversification

The 3 months correlation between SPDR and Lyxor is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding SPDR MSCI Europe and Lyxor UCITS Japan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lyxor UCITS Japan 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 Europe are associated (or correlated) with Lyxor UCITS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lyxor UCITS Japan has no effect on the direction of SPDR MSCI i.e., SPDR MSCI and Lyxor UCITS go up and down completely randomly.

Pair Corralation between SPDR MSCI and Lyxor UCITS

Assuming the 90 days trading horizon SPDR MSCI Europe is expected to under-perform the Lyxor UCITS. But the etf apears to be less risky and, when comparing its historical volatility, SPDR MSCI Europe is 1.2 times less risky than Lyxor UCITS. The etf trades about -0.18 of its potential returns per unit of risk. The Lyxor UCITS Japan is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  20,460  in Lyxor UCITS Japan on September 14, 2024 and sell it today you would earn a total of  1,450  from holding Lyxor UCITS Japan or generate 7.09% return on investment over 90 days.

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

SPDR MSCI Europe  vs.  Lyxor UCITS Japan

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. Despite latest weak performance, the Etf's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Lyxor UCITS Japan

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lyxor UCITS Japan are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Lyxor UCITS may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with SPDR MSCI and Lyxor UCITS

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

The idea behind SPDR MSCI Europe and Lyxor UCITS Japan 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.