Correlation Between Xtrackers MSCI and SPDR SP

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Can any of the company-specific risk be diversified away by investing in both Xtrackers 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 Xtrackers 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 Xtrackers MSCI EAFE and SPDR SP International, you can compare the effects of market volatilities on Xtrackers 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 Xtrackers MSCI with a short position of SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xtrackers MSCI and SPDR SP.

Diversification Opportunities for Xtrackers MSCI and SPDR SP

0.93
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Xtrackers and SPDR is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers 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 Xtrackers 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 Xtrackers 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 Xtrackers MSCI i.e., Xtrackers MSCI and SPDR SP go up and down completely randomly.

Pair Corralation between Xtrackers MSCI and SPDR SP

Given the investment horizon of 90 days Xtrackers MSCI EAFE is expected to under-perform the SPDR SP. In addition to that, Xtrackers MSCI is 1.32 times more volatile than SPDR SP International. It trades about -0.21 of its total potential returns per unit of risk. SPDR SP International is currently generating about -0.1 per unit of volatility. If you would invest  3,704  in SPDR SP International on August 28, 2024 and sell it today you would lose (54.00) from holding SPDR SP International or give up 1.46% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Xtrackers MSCI EAFE  vs.  SPDR SP International

 Performance 
       Timeline  
Xtrackers MSCI EAFE 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Xtrackers MSCI EAFE has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Xtrackers MSCI is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.
SPDR SP International 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days SPDR SP International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, SPDR SP is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Xtrackers MSCI and SPDR SP Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Xtrackers MSCI and SPDR SP

The main advantage of trading using opposite Xtrackers MSCI and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Xtrackers 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 Xtrackers 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.

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