Correlation Between IShares MSCI and SPDR SP

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Can any of the company-specific risk be diversified away by investing in both IShares MSCI and SPDR SP 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 SP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between IShares MSCI EAFE and SPDR SP International, you can compare the effects of market volatilities on IShares MSCI and SPDR SP 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 SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and SPDR SP.

Diversification Opportunities for IShares MSCI and SPDR SP

0.9
  Correlation Coefficient

Almost no diversification

The 3 months correlation between IShares and SPDR is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding IShares MSCI EAFE and SPDR SP International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP International 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 EAFE are associated (or correlated) with SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP International has no effect on the direction of IShares MSCI i.e., IShares MSCI and SPDR SP go up and down completely randomly.

Pair Corralation between IShares MSCI and SPDR SP

Considering the 90-day investment horizon IShares MSCI EAFE is expected to generate 1.01 times more return on investment than SPDR SP. However, IShares MSCI is 1.01 times more volatile than SPDR SP International. It trades about 0.14 of its potential returns per unit of risk. SPDR SP International is currently generating about 0.13 per unit of risk. If you would invest  5,461  in IShares MSCI EAFE on December 29, 2023 and sell it today you would earn a total of  867.43  from holding IShares MSCI EAFE or generate 15.88% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy99.19%
ValuesDaily Returns

IShares MSCI EAFE  vs.  SPDR SP International

 Performance 
       Timeline  
IShares MSCI EAFE 

Risk-Adjusted Performance

4 of 100

 
Low
 
High
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in IShares MSCI EAFE are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, IShares MSCI is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
SPDR SP International 

Risk-Adjusted Performance

4 of 100

 
Low
 
High
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP International are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, SPDR SP is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

IShares MSCI and SPDR SP Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with IShares MSCI and SPDR SP

The main advantage of trading using opposite IShares MSCI and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares MSCI position performs unexpectedly, SPDR SP 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 SP will offset losses from the drop in SPDR SP's long position.
The idea behind IShares MSCI EAFE and SPDR SP International 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.

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