Correlation Between SPDR SP and Vanguard MSCI
Can any of the company-specific risk be diversified away by investing in both SPDR SP and Vanguard 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 Vanguard MSCI into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SPDR SP 500 and Vanguard MSCI International, you can compare the effects of market volatilities on SPDR SP and Vanguard 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 Vanguard MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and Vanguard MSCI.
Diversification Opportunities for SPDR SP and Vanguard MSCI
1.0 | Correlation Coefficient |
No risk reduction
The 3 months correlation between SPDR and Vanguard is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 500 and Vanguard MSCI International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard MSCI Intern 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 500 are associated (or correlated) with Vanguard MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard MSCI Intern has no effect on the direction of SPDR SP i.e., SPDR SP and Vanguard MSCI go up and down completely randomly.
Pair Corralation between SPDR SP and Vanguard MSCI
Assuming the 90 days trading horizon SPDR SP 500 is expected to generate 1.31 times more return on investment than Vanguard MSCI. However, SPDR SP is 1.31 times more volatile than Vanguard MSCI International. It trades about 0.18 of its potential returns per unit of risk. Vanguard MSCI International is currently generating about 0.17 per unit of risk. If you would invest 88,408 in SPDR SP 500 on August 29, 2024 and sell it today you would earn a total of 3,722 from holding SPDR SP 500 or generate 4.21% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
SPDR SP 500 vs. Vanguard MSCI International
Performance |
| Timeline |
| SPDR SP 500 |
| Vanguard MSCI Intern |
SPDR SP and Vanguard MSCI Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SPDR SP and Vanguard MSCI
The main advantage of trading using opposite SPDR SP and Vanguard MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR SP position performs unexpectedly, Vanguard 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 Vanguard MSCI will offset losses from the drop in Vanguard MSCI's long position.| SPDR SP vs. SPDR SPASX 200 | SPDR SP vs. SPDR SPASX 50 | SPDR SP vs. SPDR MSCI World | SPDR SP vs. SPDR Dow Jones |
| Vanguard MSCI vs. Vanguard Global Minimum | Vanguard MSCI vs. Vanguard Global Aggregate | Vanguard MSCI vs. Vanguard Australian Fixed | Vanguard MSCI vs. Vanguard Global Infrastructure |
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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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