Correlation Between SPDR SP and IShares SP

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

By analyzing existing cross correlation between SPDR SP 600 and iShares SP Small Cap, you can compare the effects of market volatilities on SPDR SP and IShares 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 SPDR SP with a short position of IShares SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and IShares SP.

Diversification Opportunities for SPDR SP and IShares SP

1.0

Correlation Coefficient

SPDR SP  IShares SP

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 600 and iShares SP Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SP Small 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 600 are associated (or correlated) with IShares SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares SP Small has no effect on the direction of SPDR SP i.e., SPDR SP and IShares SP go up and down completely randomly.

Pair Corralation between SPDR SP and IShares SP

Given the investment horizon of 90 days SPDR SP is expected to generate 1.03 times less return on investment than IShares SP. But when comparing it to its historical volatility, SPDR SP 600 is 1.01 times less risky than IShares SP. It trades about 0.03 of its potential returns per unit of risk. iShares SP Small Cap is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  10,659  in iShares SP Small Cap on September 23, 2024 and sell it today you would earn a total of  227.00  from holding iShares SP Small Cap or generate 2.13% 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 600  vs.  iShares SP Small Cap

SPDR SP 600

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP 600 are ranked lower than 2 (%) 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 current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

iShares SP Small

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SP Small Cap are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable forward-looking indicators, IShares SP is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with SPDR SP and IShares SP

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

The idea behind SPDR SP 600 and iShares SP Small Cap 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.