Correlation Between SPDR SP and IShares Russell

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

By analyzing existing cross correlation between SPDR SP 400 and iShares Russell 2000, you can compare the effects of market volatilities on SPDR SP and IShares Russell 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 Russell. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and IShares Russell.

Diversification Opportunities for SPDR SP and IShares Russell

0.98

Correlation Coefficient

SPDR SP  IShares Russell

Almost no diversification

The 3 months correlation between SPDR and IShares is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 400 and iShares Russell 2000 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Russell 2000 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 400 are associated (or correlated) with IShares Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Russell 2000 has no effect on the direction of SPDR SP i.e., SPDR SP and IShares Russell go up and down completely randomly.

Pair Corralation between SPDR SP and IShares Russell

Given the investment horizon of 90 days SPDR SP 400 is expected to generate 0.79 times more return on investment than IShares Russell. However, SPDR SP 400 is 1.27 times less risky than IShares Russell. It trades about 0.07 of its potential returns per unit of risk. iShares Russell 2000 is currently generating about 0.05 per unit of risk. If you would invest  7,190  in SPDR SP 400 on September 24, 2024 and sell it today you would earn a total of  843.00  from holding SPDR SP 400 or generate 11.72% 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 400  vs.  iShares Russell 2000

SPDR SP 400

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP 400 are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, SPDR SP is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

iShares Russell 2000

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Russell 2000 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, IShares Russell is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with SPDR SP and IShares Russell

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

The idea behind SPDR SP 400 and iShares Russell 2000 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.