Correlation Between IShares China and SPDR Dow

Can any of the company-specific risk be diversified away by investing in both IShares China 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 China 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 China CNY and SPDR Dow Jones, you can compare the effects of market volatilities on IShares China 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 China with a short position of SPDR Dow. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares China and SPDR Dow.

Diversification Opportunities for IShares China and SPDR Dow

-0.84

Correlation Coefficient

IShares China  SPDR Dow

Pay attention - limited upside

The 3 months correlation between IShares and SPDR is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding iShares China CNY 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 China 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 China CNY 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 China i.e., IShares China and SPDR Dow go up and down completely randomly.

Pair Corralation between IShares China and SPDR Dow

Assuming the 90 days trading horizon iShares China CNY is expected to under-perform the SPDR Dow. But the etf apears to be less risky and, when comparing its historical volatility, iShares China CNY is 2.27 times less risky than SPDR Dow. The etf trades about -0.03 of its potential returns per unit of risk. The SPDR Dow Jones is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  37,184  in SPDR Dow Jones on September 16, 2024 and sell it today you would earn a total of  4,756  from holding SPDR Dow Jones or generate 12.79% return on investment over 90 days.

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

iShares China CNY  vs.  SPDR Dow Jones

iShares China CNY

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares China CNY has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, IShares China is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

SPDR Dow Jones

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Dow Jones are ranked lower than 17 (%) 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 China and SPDR Dow

The main advantage of trading using opposite IShares China and SPDR Dow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares China 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 China CNY 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.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.