Correlation Between SPDR SP and IShares ESG

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

By analyzing existing cross correlation between SPDR SP MIDCAP and iShares ESG Screened, you can compare the effects of market volatilities on SPDR SP and IShares ESG 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 ESG. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and IShares ESG.

Diversification Opportunities for SPDR SP and IShares ESG

1.0

Correlation Coefficient

SPDR SP  IShares ESG

No risk reduction

The 3 months correlation between SPDR and IShares is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP MIDCAP and iShares ESG Screened in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares ESG Screened 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 MIDCAP are associated (or correlated) with IShares ESG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares ESG Screened has no effect on the direction of SPDR SP i.e., SPDR SP and IShares ESG go up and down completely randomly.

Pair Corralation between SPDR SP and IShares ESG

Considering the 90-day investment horizon SPDR SP MIDCAP is expected to generate 0.96 times more return on investment than IShares ESG. However, SPDR SP MIDCAP is 1.04 times less risky than IShares ESG. It trades about 0.2 of its potential returns per unit of risk. iShares ESG Screened is currently generating about 0.19 per unit of risk. If you would invest  54,905  in SPDR SP MIDCAP on September 1, 2024 and sell it today you would earn a total of  6,681  from holding SPDR SP MIDCAP or generate 12.17% 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 MIDCAP  vs.  iShares ESG Screened

SPDR SP MIDCAP

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP MIDCAP are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in December 2024.

iShares ESG Screened

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares ESG Screened are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite fairly conflicting forward-looking indicators, IShares ESG may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with SPDR SP and IShares ESG

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

The idea behind SPDR SP MIDCAP and iShares ESG Screened 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.

Check out your portfolio center.

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 Stocks Directory module to find actively traded stocks across global markets.