Correlation Between IShares SP and SPDR SP

Can any of the company-specific risk be diversified away by investing in both IShares SP 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 SP 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 SP 500 and SPDR SP World, you can compare the effects of market volatilities on IShares SP 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 SP with a short position of SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares SP and SPDR SP.

Diversification Opportunities for IShares SP and SPDR SP

0.92

Correlation Coefficient

IShares SP  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 SP 500 and SPDR SP World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP World and IShares 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 iShares SP 500 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 World has no effect on the direction of IShares SP i.e., IShares SP and SPDR SP go up and down completely randomly.

Pair Corralation between IShares SP and SPDR SP

Assuming the 90 days trading horizon IShares SP is expected to generate 2.44 times less return on investment than SPDR SP. In addition to that, IShares SP is 1.34 times more volatile than SPDR SP World. It trades about 0.07 of its total potential returns per unit of risk. SPDR SP World is currently generating about 0.21 per unit of volatility. If you would invest  4,656  in SPDR SP World on September 26, 2024 and sell it today you would earn a total of  272.00  from holding SPDR SP World or generate 5.84% return on investment over 90 days.

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

iShares SP 500  vs.  SPDR SP World

iShares SP 500

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SP 500 are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, IShares SP is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

SPDR SP World

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP World are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares SP and SPDR SP

The main advantage of trading using opposite IShares SP and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares SP 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 SP 500 and SPDR SP World 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.