Correlation Between IShares MSCI and SPDR SSGA

Can any of the company-specific risk be diversified away by investing in both IShares MSCI and SPDR SSGA 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 SSGA 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 SSGA Large, you can compare the effects of market volatilities on IShares MSCI and SPDR SSGA 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 SSGA. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and SPDR SSGA.

Diversification Opportunities for IShares MSCI and SPDR SSGA

0.75

Correlation Coefficient

IShares MSCI  SPDR SSGA

Poor diversification

The 3 months correlation between IShares and SPDR is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI EAFE and SPDR SSGA Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SSGA Large 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 SSGA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SSGA Large has no effect on the direction of IShares MSCI i.e., IShares MSCI and SPDR SSGA go up and down completely randomly.

Pair Corralation between IShares MSCI and SPDR SSGA

Given the investment horizon of 90 days IShares MSCI is expected to generate 1.35 times less return on investment than SPDR SSGA. In addition to that, IShares MSCI is 1.06 times more volatile than SPDR SSGA Large. It trades about 0.03 of its total potential returns per unit of risk. SPDR SSGA Large is currently generating about 0.04 per unit of volatility. If you would invest  17,010  in SPDR SSGA Large on May 6, 2025 and sell it today you would earn a total of  262.00  from holding SPDR SSGA Large or generate 1.54% return on investment over 90 days.

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

iShares MSCI EAFE  vs.  SPDR SSGA Large

iShares MSCI EAFE

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI EAFE are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, IShares MSCI is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

SPDR SSGA Large

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SSGA Large are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable essential indicators, SPDR SSGA is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with IShares MSCI and SPDR SSGA

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

The idea behind iShares MSCI EAFE and SPDR SSGA Large 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.