Correlation Between IShares BRIC and SPDR Dow

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

By analyzing existing cross correlation between iShares BRIC 50 and SPDR Dow Jones, you can compare the effects of market volatilities on IShares BRIC and SPDR Dow 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 BRIC with a short position of SPDR Dow. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares BRIC and SPDR Dow.

Diversification Opportunities for IShares BRIC and SPDR Dow

-0.4

Correlation Coefficient

IShares BRIC  SPDR Dow

Very good diversification

The 3 months correlation between IShares and SPDR is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding iShares BRIC 50 and SPDR Dow Jones in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Dow Jones and IShares BRIC 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 BRIC 50 are associated (or correlated) with SPDR Dow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Dow Jones has no effect on the direction of IShares BRIC i.e., IShares BRIC and SPDR Dow go up and down completely randomly.

Pair Corralation between IShares BRIC and SPDR Dow

Assuming the 90 days trading horizon iShares BRIC 50 is expected to generate 2.66 times more return on investment than SPDR Dow. However, IShares BRIC is 2.66 times more volatile than SPDR Dow Jones. It trades about 0.08 of its potential returns per unit of risk. SPDR Dow Jones is currently generating about 0.17 per unit of risk. If you would invest  1,755  in iShares BRIC 50 on September 23, 2024 and sell it today you would earn a total of  189.00  from holding iShares BRIC 50 or generate 10.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

iShares BRIC 50  vs.  SPDR Dow Jones

iShares BRIC 50

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares BRIC 50 are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, IShares BRIC may actually be approaching a critical reversion point that can send shares even higher in January 2025.

SPDR Dow Jones

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Dow Jones are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, SPDR Dow may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares BRIC and SPDR Dow

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

The idea behind iShares BRIC 50 and SPDR Dow Jones 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.