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 Financials and SPDR MSCI Europe, 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

0.52

Correlation Coefficient

SPDR SP  SPDR MSCI

Very weak diversification

The 3 months correlation between SPDR and SPDR is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Financials and SPDR MSCI Europe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR MSCI Europe 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 Financials 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 Europe 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

Assuming the 90 days trading horizon SPDR SP is expected to generate 2.78 times less return on investment than SPDR MSCI. In addition to that, SPDR SP is 1.34 times more volatile than SPDR MSCI Europe. It trades about 0.04 of its total potential returns per unit of risk. SPDR MSCI Europe is currently generating about 0.16 per unit of volatility. If you would invest  5,290  in SPDR MSCI Europe on May 16, 2025 and sell it today you would earn a total of  367.00  from holding SPDR MSCI Europe or generate 6.94% return on investment over 90 days.

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

SPDR SP Financials  vs.  SPDR MSCI Europe

SPDR SP Financials

Risk-Adjusted Performance

Soft

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

SPDR MSCI Europe

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR MSCI Europe are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, SPDR MSCI may actually be approaching a critical reversion point that can send shares even higher in September 2025.

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 Financials and SPDR MSCI Europe 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.