Correlation Between SPDR SP and SPDR MSCI

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

By analyzing existing cross correlation between SPDR SP 1500 and SPDR MSCI USA, you can compare the effects of market volatilities on SPDR SP and SPDR 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 SP with a short position of SPDR MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and SPDR MSCI.

Diversification Opportunities for SPDR SP and SPDR MSCI

0.95

Correlation Coefficient

SPDR SP  SPDR MSCI

Almost no diversification

The 3 months correlation between SPDR and SPDR is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 1500 and SPDR MSCI USA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR MSCI USA and SPDR SP 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 SP 1500 are associated (or correlated) with SPDR MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR MSCI USA has no effect on the direction of SPDR SP i.e., SPDR SP and SPDR MSCI go up and down completely randomly.

Pair Corralation between SPDR SP and SPDR MSCI

Considering the 90-day investment horizon SPDR SP 1500 is expected to under-perform the SPDR MSCI. In addition to that, SPDR SP is 1.02 times more volatile than SPDR MSCI USA. It trades about -0.16 of its total potential returns per unit of risk. SPDR MSCI USA is currently generating about -0.12 per unit of volatility. If you would invest  14,375  in SPDR MSCI USA on February 7, 2024 and sell it today you would lose (252.00) from holding SPDR MSCI USA or give up 1.75% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.45%
Values	Daily Returns

SPDR SP 1500  vs.  SPDR MSCI USA

SPDR SP 1500

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP 1500 are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable essential indicators, SPDR SP is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

SPDR MSCI USA

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR MSCI USA are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, SPDR MSCI is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with SPDR SP and SPDR MSCI

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

The idea behind SPDR SP 1500 and SPDR MSCI USA 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.