Correlation Between IShares SPTSX and Global X

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

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

Diversification Opportunities for IShares SPTSX and Global X

0.8

Correlation Coefficient

IShares SPTSX  Global X

Very poor diversification

The 3 months correlation between IShares and Global is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding iShares SPTSX Capped and Global X Enhanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global X Enhanced and IShares SPTSX 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 iShares SPTSX Capped are associated (or correlated) with Global X. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global X Enhanced has no effect on the direction of IShares SPTSX i.e., IShares SPTSX and Global X go up and down completely randomly.

Pair Corralation between IShares SPTSX and Global X

Assuming the 90 days trading horizon iShares SPTSX Capped is expected to generate 1.32 times more return on investment than Global X. However, IShares SPTSX is 1.32 times more volatile than Global X Enhanced. It trades about 0.35 of its potential returns per unit of risk. Global X Enhanced is currently generating about 0.33 per unit of risk. If you would invest  5,476  in iShares SPTSX Capped on September 12, 2024 and sell it today you would earn a total of  646.00  from holding iShares SPTSX Capped or generate 11.8% return on investment over 90 days.

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

iShares SPTSX Capped  vs.  Global X Enhanced

iShares SPTSX Capped

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SPTSX Capped are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, IShares SPTSX may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Global X Enhanced

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Global X Enhanced are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Global X may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares SPTSX and Global X

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

The idea behind iShares SPTSX Capped and Global X Enhanced 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.