Correlation Between IShares Global and SPDR SP

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

Diversification Opportunities for IShares Global and SPDR SP

0.85

Correlation Coefficient

IShares Global  SPDR SP

Very poor diversification

The 3 months correlation between IShares and SPDR is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding iShares Global Consumer 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 Global 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 Global Consumer 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 Global i.e., IShares Global and SPDR SP go up and down completely randomly.

Pair Corralation between IShares Global and SPDR SP

Assuming the 90 days trading horizon IShares Global is expected to generate 1.94 times less return on investment than SPDR SP. But when comparing it to its historical volatility, iShares Global Consumer is 1.2 times less risky than SPDR SP. It trades about 0.15 of its potential returns per unit of risk. SPDR SP World is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  4,772  in SPDR SP World on September 25, 2024 and sell it today you would earn a total of  139.00  from holding SPDR SP World or generate 2.91% return on investment over 90 days.

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

iShares Global Consumer  vs.  SPDR SP World

iShares Global Consumer

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Global Consumer are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable forward indicators, IShares Global 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 Global and SPDR SP

The main advantage of trading using opposite IShares Global and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Global 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 Global Consumer 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.