Correlation Between Vanguard MSCI and SPDR SP
Can any of the company-specific risk be diversified away by investing in both Vanguard 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 Vanguard 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 Vanguard MSCI International and SPDR SP 500, you can compare the effects of market volatilities on Vanguard 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 Vanguard MSCI with a short position of SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard MSCI and SPDR SP.
Diversification Opportunities for Vanguard MSCI and SPDR SP
1.0 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Vanguard and SPDR is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard MSCI International and SPDR SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP 500 and Vanguard 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 Vanguard MSCI International 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 500 has no effect on the direction of Vanguard MSCI i.e., Vanguard MSCI and SPDR SP go up and down completely randomly.
Pair Corralation between Vanguard MSCI and SPDR SP
Assuming the 90 days trading horizon Vanguard MSCI is expected to generate 1.2 times less return on investment than SPDR SP. But when comparing it to its historical volatility, Vanguard MSCI International is 1.14 times less risky than SPDR SP. It trades about 0.16 of its potential returns per unit of risk. SPDR SP 500 is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 69,123 in SPDR SP 500 on August 25, 2024 and sell it today you would earn a total of 22,086 from holding SPDR SP 500 or generate 31.95% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard MSCI International vs. SPDR SP 500
Performance |
| Timeline |
| Vanguard MSCI Intern |
| SPDR SP 500 |
Vanguard MSCI and SPDR SP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard MSCI and SPDR SP
The main advantage of trading using opposite Vanguard MSCI and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard 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.| Vanguard MSCI vs. Vanguard Global Minimum | Vanguard MSCI vs. Vanguard Global Aggregate | Vanguard MSCI vs. Vanguard Australian Fixed | Vanguard MSCI vs. Vanguard Global Infrastructure |
| SPDR SP vs. BetaShares Global Banks | SPDR SP vs. Beta Shares SPASX | SPDR SP vs. SPDR SPASX 200 | SPDR SP vs. Vanguard Australian Property |
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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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