Correlation Between IShares II and SSgA SPDR

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

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

Diversification Opportunities for IShares II and SSgA SPDR

-0.22

Correlation Coefficient

IShares II  SSgA SPDR

Very good diversification

The 3 months correlation between IShares and SSgA is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding iShares II Public and SSgA SPDR ETFs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SSgA SPDR ETFs and IShares II 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 II Public are associated (or correlated) with SSgA SPDR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SSgA SPDR ETFs has no effect on the direction of IShares II i.e., IShares II and SSgA SPDR go up and down completely randomly.

Pair Corralation between IShares II and SSgA SPDR

Assuming the 90 days trading horizon iShares II Public is expected to under-perform the SSgA SPDR. But the etf apears to be less risky and, when comparing its historical volatility, iShares II Public is 1.27 times less risky than SSgA SPDR. The etf trades about -0.07 of its potential returns per unit of risk. The SSgA SPDR ETFs is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  10,560  in SSgA SPDR ETFs on September 27, 2024 and sell it today you would earn a total of  1,489  from holding SSgA SPDR ETFs or generate 14.1% return on investment over 90 days.

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

iShares II Public  vs.  SSgA SPDR ETFs

iShares II Public

Risk-Adjusted Performance

0 of 100

Very Weak

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

SSgA SPDR ETFs

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SSgA SPDR ETFs are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, SSgA SPDR unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares II and SSgA SPDR

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

The idea behind iShares II Public and SSgA SPDR ETFs 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.