Correlation Between IShares Technology and SPDR SP

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

Diversification Opportunities for IShares Technology and SPDR SP

0.92

Correlation Coefficient

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

Pair Corralation between IShares Technology and SPDR SP

Considering the 90-day investment horizon IShares Technology is expected to generate 28.44 times less return on investment than SPDR SP. But when comparing it to its historical volatility, iShares Technology ETF is 1.16 times less risky than SPDR SP. It trades about 0.01 of its potential returns per unit of risk. SPDR SP Kensho is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  6,299  in SPDR SP Kensho on August 30, 2024 and sell it today you would earn a total of  554.00  from holding SPDR SP Kensho or generate 8.8% return on investment over 90 days.

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

iShares Technology ETF  vs.  SPDR SP Kensho

iShares Technology ETF

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Technology ETF are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, IShares Technology may actually be approaching a critical reversion point that can send shares even higher in December 2024.

SPDR SP Kensho

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Kensho are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with IShares Technology and SPDR SP

The main advantage of trading using opposite IShares Technology and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Technology 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 Technology ETF and SPDR SP Kensho 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.