Correlation Between SPDR MSCI and FlexShares Quality

Can any of the company-specific risk be diversified away by investing in both SPDR MSCI and FlexShares Quality 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 FlexShares Quality into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between SPDR MSCI USA and FlexShares Quality Dividend, you can compare the effects of market volatilities on SPDR MSCI and FlexShares Quality 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 FlexShares Quality. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR MSCI and FlexShares Quality.

Diversification Opportunities for SPDR MSCI and FlexShares Quality

0.99

Correlation Coefficient

SPDR MSCI  FlexShares Quality

No risk reduction

The 3 months correlation between SPDR and FlexShares is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding SPDR MSCI USA and FlexShares Quality Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares Quality 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 USA are associated (or correlated) with FlexShares Quality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares Quality has no effect on the direction of SPDR MSCI i.e., SPDR MSCI and FlexShares Quality go up and down completely randomly.

Pair Corralation between SPDR MSCI and FlexShares Quality

Considering the 90-day investment horizon SPDR MSCI USA is expected to under-perform the FlexShares Quality. But the etf apears to be less risky and, when comparing its historical volatility, SPDR MSCI USA is 1.05 times less risky than FlexShares Quality. The etf trades about -0.07 of its potential returns per unit of risk. The FlexShares Quality Dividend is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  6,260  in FlexShares Quality Dividend on February 4, 2024 and sell it today you would lose (28.86) from holding FlexShares Quality Dividend or give up 0.46% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.65%
Values	Daily Returns

SPDR MSCI USA  vs.  FlexShares Quality Dividend

SPDR MSCI USA

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR MSCI USA are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, SPDR MSCI is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

FlexShares Quality

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in FlexShares Quality Dividend are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, FlexShares Quality is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with SPDR MSCI and FlexShares Quality

The main advantage of trading using opposite SPDR MSCI and FlexShares Quality positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR MSCI position performs unexpectedly, FlexShares Quality 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 FlexShares Quality will offset losses from the drop in FlexShares Quality's long position.

The idea behind SPDR MSCI USA and FlexShares Quality Dividend 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.

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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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.