Correlation Between SPDR SP and IShares Infrastructure

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

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

Diversification Opportunities for SPDR SP and IShares Infrastructure

0.75

Correlation Coefficient

SPDR SP  IShares Infrastructure

Poor diversification

The 3 months correlation between SPDR and IShares is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Global and iShares Infrastructure ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Infrastructure and SPDR SP 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 SPDR SP Global are associated (or correlated) with IShares Infrastructure. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Infrastructure has no effect on the direction of SPDR SP i.e., SPDR SP and IShares Infrastructure go up and down completely randomly.

Pair Corralation between SPDR SP and IShares Infrastructure

Considering the 90-day investment horizon SPDR SP is expected to generate 2.38 times less return on investment than IShares Infrastructure. But when comparing it to its historical volatility, SPDR SP Global is 1.48 times less risky than IShares Infrastructure. It trades about 0.16 of its potential returns per unit of risk. iShares Infrastructure ETF is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  4,425  in iShares Infrastructure ETF on September 2, 2024 and sell it today you would earn a total of  735.00  from holding iShares Infrastructure ETF or generate 16.61% return on investment over 90 days.

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

SPDR SP Global  vs.  iShares Infrastructure ETF

SPDR SP Global

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Global are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak forward indicators, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

iShares Infrastructure

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Infrastructure ETF are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, IShares Infrastructure sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SPDR SP and IShares Infrastructure

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

The idea behind SPDR SP Global and iShares Infrastructure ETF 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .