Correlation Between SPDR MSCI and Vanguard FTSE
Can any of the company-specific risk be diversified away by investing in both SPDR MSCI and Vanguard FTSE 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 MSCI and Vanguard FTSE into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SPDR MSCI Europe and Vanguard FTSE Developed, you can compare the effects of market volatilities on SPDR MSCI and Vanguard FTSE 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 MSCI with a short position of Vanguard FTSE. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR MSCI and Vanguard FTSE.
Diversification Opportunities for SPDR MSCI and Vanguard FTSE
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between SPDR and Vanguard is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding SPDR MSCI Europe and Vanguard FTSE Developed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard FTSE Developed and SPDR 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 SPDR MSCI Europe are associated (or correlated) with Vanguard FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard FTSE Developed has no effect on the direction of SPDR MSCI i.e., SPDR MSCI and Vanguard FTSE go up and down completely randomly.
Pair Corralation between SPDR MSCI and Vanguard FTSE
Assuming the 90 days trading horizon SPDR MSCI is expected to generate 1.39 times less return on investment than Vanguard FTSE. But when comparing it to its historical volatility, SPDR MSCI Europe is 1.22 times less risky than Vanguard FTSE. It trades about 0.03 of its potential returns per unit of risk. Vanguard FTSE Developed is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 4,161 in Vanguard FTSE Developed on August 25, 2024 and sell it today you would earn a total of 513.00 from holding Vanguard FTSE Developed or generate 12.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 99.76% |
| Values | Daily Returns |
SPDR MSCI Europe vs. Vanguard FTSE Developed
Performance |
| Timeline |
| SPDR MSCI Europe |
| Vanguard FTSE Developed |
SPDR MSCI and Vanguard FTSE Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SPDR MSCI and Vanguard FTSE
The main advantage of trading using opposite SPDR MSCI and Vanguard FTSE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR MSCI position performs unexpectedly, Vanguard FTSE 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 Vanguard FTSE will offset losses from the drop in Vanguard FTSE's long position.| SPDR MSCI vs. Vanguard FTSE Developed | SPDR MSCI vs. Leverage Shares 2x | SPDR MSCI vs. Amundi Index Solutions | SPDR MSCI vs. Amundi Index Solutions |
| Vanguard FTSE vs. Leverage Shares 2x | Vanguard FTSE vs. Amundi Index Solutions | Vanguard FTSE vs. Amundi Index Solutions | Vanguard FTSE vs. Albion Venture Capital |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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