Correlation Between SPDR 500 and SPDR MSCI
Can any of the company-specific risk be diversified away by investing in both SPDR 500 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 500 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 500 LOW and SPDR MSCI Europe, you can compare the effects of market volatilities on SPDR 500 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 500 with a short position of SPDR MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR 500 and SPDR MSCI.
Diversification Opportunities for SPDR 500 and SPDR MSCI
Very good diversification
The 3 months correlation between SPDR and SPDR is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding SPDR 500 LOW 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 500 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 500 LOW 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 500 i.e., SPDR 500 and SPDR MSCI go up and down completely randomly.
Pair Corralation between SPDR 500 and SPDR MSCI
Assuming the 90 days trading horizon SPDR 500 is expected to generate 2.65 times less return on investment than SPDR MSCI. But when comparing it to its historical volatility, SPDR 500 LOW is 2.14 times less risky than SPDR MSCI. It trades about 0.05 of its potential returns per unit of risk. SPDR MSCI Europe is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 9,200 in SPDR MSCI Europe on September 19, 2024 and sell it today you would earn a total of 4,426 from holding SPDR MSCI Europe or generate 48.11% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
SPDR 500 LOW vs. SPDR MSCI Europe
Performance |
| Timeline |
| SPDR 500 LOW |
| SPDR MSCI Europe |
SPDR 500 and SPDR MSCI Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SPDR 500 and SPDR MSCI
The main advantage of trading using opposite SPDR 500 and SPDR MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR 500 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.| SPDR 500 vs. SPDR MSCI Europe | SPDR 500 vs. SPDR MSCI Europe | SPDR 500 vs. SPDR Barclays Cap | SPDR 500 vs. SPDR SP 500 |
| SPDR MSCI vs. Lyxor UCITS Japan | SPDR MSCI vs. Lyxor UCITS Japan | SPDR MSCI vs. Lyxor UCITS Stoxx | SPDR MSCI vs. Gold Bullion Securities |
Check out your portfolio center.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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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