Correlation Between FlexShares Quality and SPDR MSCI
Can any of the company-specific risk be diversified away by investing in both FlexShares Quality 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 FlexShares Quality and SPDR MSCI into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between FlexShares Quality Dividend and SPDR MSCI USA, you can compare the effects of market volatilities on FlexShares Quality 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 FlexShares Quality with a short position of SPDR MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of FlexShares Quality and SPDR MSCI.
Diversification Opportunities for FlexShares Quality and SPDR MSCI
0.96 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between FlexShares and SPDR is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding FlexShares Quality Dividend 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 FlexShares Quality 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 FlexShares Quality Dividend 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 FlexShares Quality i.e., FlexShares Quality and SPDR MSCI go up and down completely randomly.
Pair Corralation between FlexShares Quality and SPDR MSCI
Considering the 90-day investment horizon FlexShares Quality is expected to generate 1.12 times less return on investment than SPDR MSCI. In addition to that, FlexShares Quality is 1.12 times more volatile than SPDR MSCI USA. It trades about 0.09 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 10,980 in SPDR MSCI USA on August 30, 2024 and sell it today you would earn a total of 5,355 from holding SPDR MSCI USA or generate 48.77% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
FlexShares Quality Dividend vs. SPDR MSCI USA
Performance |
| Timeline |
| FlexShares Quality |
| SPDR MSCI USA |
FlexShares Quality and SPDR MSCI Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with FlexShares Quality and SPDR MSCI
The main advantage of trading using opposite FlexShares Quality and SPDR MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FlexShares Quality 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 FlexShares Quality Dividend 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.
| SPDR MSCI vs. SPDR SSGA Large | SPDR MSCI vs. SPDR MSCI EAFE | SPDR MSCI vs. SPDR MSCI Emerging | SPDR MSCI vs. SPDR Russell 1000 |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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