Correlation Between SPDR SP and IShares

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

By analyzing existing cross correlation between SPDR SP 500 and IShares, you can compare the effects of market volatilities on SPDR SP and IShares 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. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and IShares.

Diversification Opportunities for SPDR SP and IShares

-0.38

Correlation Coefficient

SPDR SP  IShares

Very good diversification

The 3 months correlation between SPDR and IShares is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 500 and IShares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IShares 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 500 are associated (or correlated) with IShares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IShares has no effect on the direction of SPDR SP i.e., SPDR SP and IShares go up and down completely randomly.

Pair Corralation between SPDR SP and IShares

Given the investment horizon of 90 days SPDR SP 500 is expected to generate 1.02 times more return on investment than IShares. However, SPDR SP is 1.02 times more volatile than IShares. It trades about 0.13 of its potential returns per unit of risk. IShares is currently generating about 0.01 per unit of risk. If you would invest  3,831  in SPDR SP 500 on September 25, 2024 and sell it today you would earn a total of  1,098  from holding SPDR SP 500 or generate 28.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	62.5%
Values	Daily Returns

SPDR SP 500  vs.  IShares

SPDR SP 500

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP 500 are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, SPDR SP is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

IShares

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with SPDR SP and IShares

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

The idea behind SPDR SP 500 and IShares 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.