Correlation Between SSgA SPDR and IShares MSCI

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

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

Diversification Opportunities for SSgA SPDR and IShares MSCI

0.95

Correlation Coefficient

SSgA SPDR  IShares MSCI

Almost no diversification

The 3 months correlation between SSgA and IShares is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding SSgA SPDR ETFs and iShares MSCI World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI World and SSgA SPDR 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 SSgA SPDR ETFs are associated (or correlated) with IShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MSCI World has no effect on the direction of SSgA SPDR i.e., SSgA SPDR and IShares MSCI go up and down completely randomly.

Pair Corralation between SSgA SPDR and IShares MSCI

Assuming the 90 days trading horizon SSgA SPDR ETFs is expected to under-perform the IShares MSCI. But the etf apears to be less risky and, when comparing its historical volatility, SSgA SPDR ETFs is 1.03 times less risky than IShares MSCI. The etf trades about -0.33 of its potential returns per unit of risk. The iShares MSCI World is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  7,676  in iShares MSCI World on September 26, 2024 and sell it today you would earn a total of  10.00  from holding iShares MSCI World or generate 0.13% return on investment over 90 days.

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

SSgA SPDR ETFs  vs.  iShares MSCI World

SSgA SPDR ETFs

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SSgA SPDR ETFs are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, SSgA SPDR unveiled solid returns over the last few months and may actually be approaching a breakup point.

iShares MSCI World

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI World are ranked lower than 15 (%) 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.

Pair Trading with SSgA SPDR and IShares MSCI

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

The idea behind SSgA SPDR ETFs and iShares 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.