Correlation Between IShares MSCI and SP Funds

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

By analyzing existing cross correlation between iShares MSCI EAFE and SP Funds Trust, you can compare the effects of market volatilities on IShares MSCI and SP Funds 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 IShares MSCI with a short position of SP Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and SP Funds.

Diversification Opportunities for IShares MSCI and SP Funds

0.86

Correlation Coefficient

IShares MSCI  SP Funds

Very poor diversification

The 3 months correlation between IShares and SPWO is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI EAFE and SP Funds Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SP Funds Trust and IShares 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 iShares MSCI EAFE are associated (or correlated) with SP Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SP Funds Trust has no effect on the direction of IShares MSCI i.e., IShares MSCI and SP Funds go up and down completely randomly.

Pair Corralation between IShares MSCI and SP Funds

Considering the 90-day investment horizon IShares MSCI is expected to generate 1.7 times less return on investment than SP Funds. But when comparing it to its historical volatility, iShares MSCI EAFE is 1.12 times less risky than SP Funds. It trades about 0.04 of its potential returns per unit of risk. SP Funds Trust is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,937  in SP Funds Trust on March 7, 2025 and sell it today you would earn a total of  441.00  from holding SP Funds Trust or generate 22.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	73.89%
Values	Daily Returns

iShares MSCI EAFE  vs.  SP Funds Trust

iShares MSCI EAFE

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI EAFE are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, IShares MSCI is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

SP Funds Trust

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SP Funds Trust are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, SP Funds is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with IShares MSCI and SP Funds

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

The idea behind iShares MSCI EAFE and SP Funds Trust 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.