Correlation Between SPDR SP and IShares Global

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

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

Diversification Opportunities for SPDR SP and IShares Global

0.96

Correlation Coefficient

SPDR SP  IShares Global

Almost no diversification

The 3 months correlation between SPDR and IShares is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Bank and iShares Global Financials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Global Financials and SPDR 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 SPDR SP Bank are associated (or correlated) with IShares Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Global Financials has no effect on the direction of SPDR SP i.e., SPDR SP and IShares Global go up and down completely randomly.

Pair Corralation between SPDR SP and IShares Global

Considering the 90-day investment horizon SPDR SP Bank is expected to generate 2.41 times more return on investment than IShares Global. However, SPDR SP is 2.41 times more volatile than iShares Global Financials. It trades about 0.13 of its potential returns per unit of risk. iShares Global Financials is currently generating about 0.18 per unit of risk. If you would invest  5,281  in SPDR SP Bank on September 2, 2024 and sell it today you would earn a total of  903.00  from holding SPDR SP Bank or generate 17.1% return on investment over 90 days.

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

SPDR SP Bank  vs.  iShares Global Financials

SPDR SP Bank

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Bank are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental drivers, SPDR SP exhibited solid returns over the last few months and may actually be approaching a breakup point.

iShares Global Financials

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Global Financials are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, IShares Global may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with SPDR SP and IShares Global

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

The idea behind SPDR SP Bank and iShares Global Financials 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..