Correlation
An analysis of the correlations between the various indices and the MSCI Europe benchmark supports the thesis that the various pan-Europe tradeable indices are similar.
Based on a correlation analysis using five years of monthly returns (see Figure 1, below), the EURO STOXX 50 index has a slightly lower correlation with the pan-European indices (STOXX Europe 50, RUBIX PanEurope60, FTSEurofirst 100, MSCI Europe) than the pan-European indices have with each other.
Performance
The past performance of the indices gives a different result. Over both the long- and short-term, performance differs notably, despite the high correlations between the indices: for example, since 1999 the STOXX EUROPE 50 is up 8.0% but the MSCI Europe has risen 25.0%.
The Differences
The data show that, despite perceptions, the performance outcomes of existing pan-European equity indices are more diverse than might be desired by investors. Despite the obvious similarities of the index methodologies, there are some noteworthy differences that may impact performance results (see Figure 3).
The MSCI Europe index, while promoted as a tradeable index, was conceived as a benchmark and does not have a fixed constituent number. MSCI also uses a semi-annual review process, unlike other index providers (see Figure 3).
FTSE and MSCI consider eligibility by company, and where multiple lines of stocks qualify for an eligible company they will be included, meaning there can be more than the headline number of individual lines of stock in the FTSEurofirst indices.
Comment Using: |
2011
