Correlation Between IShares Basic and SPDR Dow

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

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

Diversification Opportunities for IShares Basic and SPDR Dow

0.18

Correlation Coefficient

IShares Basic  SPDR Dow

Average diversification

The 3 months correlation between IShares and SPDR is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding iShares Basic Materials and SPDR Dow Jones in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Dow Jones and IShares Basic 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 Basic Materials are associated (or correlated) with SPDR Dow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Dow Jones has no effect on the direction of IShares Basic i.e., IShares Basic and SPDR Dow go up and down completely randomly.

Pair Corralation between IShares Basic and SPDR Dow

Considering the 90-day investment horizon IShares Basic is expected to generate 4.36 times less return on investment than SPDR Dow. In addition to that, IShares Basic is 1.12 times more volatile than SPDR Dow Jones. It trades about 0.02 of its total potential returns per unit of risk. SPDR Dow Jones is currently generating about 0.09 per unit of volatility. If you would invest  10,395  in SPDR Dow Jones on August 30, 2024 and sell it today you would earn a total of  466.00  from holding SPDR Dow Jones or generate 4.48% return on investment over 90 days.

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

iShares Basic Materials  vs.  SPDR Dow Jones

iShares Basic Materials

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Basic Materials are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, IShares Basic is not utilizing all of its potentials. The new stock price disarray, may contribute to short-term losses for the investors.

SPDR Dow Jones

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Dow Jones are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, SPDR Dow is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with IShares Basic and SPDR Dow

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

The idea behind iShares Basic Materials and SPDR Dow Jones 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.