Correlation Between SPDR EURO and IShares MSCI

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

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

Diversification Opportunities for SPDR EURO and IShares MSCI

0.99

Correlation Coefficient

SPDR EURO  IShares MSCI

No risk reduction

The 3 months correlation between SPDR and IShares is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding SPDR EURO STOXX and iShares MSCI Eurozone in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI Eurozone and SPDR EURO 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 EURO STOXX 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 Eurozone has no effect on the direction of SPDR EURO i.e., SPDR EURO and IShares MSCI go up and down completely randomly.

Pair Corralation between SPDR EURO and IShares MSCI

Considering the 90-day investment horizon SPDR EURO STOXX is expected to generate 1.03 times more return on investment than IShares MSCI. However, SPDR EURO is 1.03 times more volatile than iShares MSCI Eurozone. It trades about 0.06 of its potential returns per unit of risk. iShares MSCI Eurozone is currently generating about 0.05 per unit of risk. If you would invest  3,709  in SPDR EURO STOXX on January 29, 2024 and sell it today you would earn a total of  1,458  from holding SPDR EURO STOXX or generate 39.31% return on investment over 90 days.

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

SPDR EURO STOXX  vs.  iShares MSCI Eurozone

SPDR EURO STOXX

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR EURO STOXX are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating technical and fundamental indicators, SPDR EURO may actually be approaching a critical reversion point that can send shares even higher in May 2024.

iShares MSCI Eurozone

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI Eurozone are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, IShares MSCI is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with SPDR EURO and IShares MSCI

The main advantage of trading using opposite SPDR EURO and IShares MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR EURO 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 SPDR EURO STOXX and iShares MSCI Eurozone 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.