Correlation Between IShares Focused and SPDR SP

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

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

Diversification Opportunities for IShares Focused and SPDR SP

0.68

Correlation Coefficient

IShares Focused  SPDR SP

Poor diversification

The 3 months correlation between IShares and SPDR is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding iShares Focused Value and SPDR SP Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Dividend and IShares Focused 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 Focused Value are associated (or correlated) with SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP Dividend has no effect on the direction of IShares Focused i.e., IShares Focused and SPDR SP go up and down completely randomly.

Pair Corralation between IShares Focused and SPDR SP

Given the investment horizon of 90 days iShares Focused Value is expected to generate 2.05 times more return on investment than SPDR SP. However, IShares Focused is 2.05 times more volatile than SPDR SP Dividend. It trades about 0.21 of its potential returns per unit of risk. SPDR SP Dividend is currently generating about 0.09 per unit of risk. If you would invest  6,445  in iShares Focused Value on September 5, 2024 and sell it today you would earn a total of  1,039  from holding iShares Focused Value or generate 16.12% return on investment over 90 days.

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

iShares Focused Value  vs.  SPDR SP Dividend

iShares Focused Value

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Focused Value are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, IShares Focused disclosed solid returns over the last few months and may actually be approaching a breakup point.

SPDR SP Dividend

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Dividend are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, SPDR SP is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares Focused and SPDR SP

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

The idea behind iShares Focused Value and SPDR SP Dividend 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 Stocks Directory module to find actively traded stocks across global markets.