Correlation Between IShares Regional and SPDR SP

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

Diversification Opportunities for IShares Regional and SPDR SP

0.92

Correlation Coefficient

IShares Regional  SPDR SP

Almost no diversification

The 3 months correlation between IShares and SPDR is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding iShares Regional Banks and SPDR SP Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Insurance and IShares Regional 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 Regional Banks 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 Insurance has no effect on the direction of IShares Regional i.e., IShares Regional and SPDR SP go up and down completely randomly.

Pair Corralation between IShares Regional and SPDR SP

Considering the 90-day investment horizon iShares Regional Banks is expected to generate 1.73 times more return on investment than SPDR SP. However, IShares Regional is 1.73 times more volatile than SPDR SP Insurance. It trades about 0.16 of its potential returns per unit of risk. SPDR SP Insurance is currently generating about 0.08 per unit of risk. If you would invest  4,547  in iShares Regional Banks on September 12, 2024 and sell it today you would earn a total of  870.00  from holding iShares Regional Banks or generate 19.13% return on investment over 90 days.

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

iShares Regional Banks  vs.  SPDR SP Insurance

iShares Regional Banks

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Regional Banks are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, IShares Regional unveiled solid returns over the last few months and may actually be approaching a breakup point.

SPDR SP Insurance

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Insurance are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound forward indicators, SPDR SP is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with IShares Regional and SPDR SP

The main advantage of trading using opposite IShares Regional and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Regional 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 Regional Banks and SPDR SP Insurance 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.