Correlation Between SPDR SP and IShares Pharmaceuticals

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

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

Diversification Opportunities for SPDR SP and IShares Pharmaceuticals

0.57

Correlation Coefficient

SPDR SP  IShares Pharmaceuticals

Very weak diversification

The 3 months correlation between SPDR and IShares is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Health and iShares Pharmaceuticals ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Pharmaceuticals 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 Health are associated (or correlated) with IShares Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Pharmaceuticals has no effect on the direction of SPDR SP i.e., SPDR SP and IShares Pharmaceuticals go up and down completely randomly.

Pair Corralation between SPDR SP and IShares Pharmaceuticals

Considering the 90-day investment horizon SPDR SP Health is expected to generate 1.61 times more return on investment than IShares Pharmaceuticals. However, SPDR SP is 1.61 times more volatile than iShares Pharmaceuticals ETF. It trades about 0.0 of its potential returns per unit of risk. iShares Pharmaceuticals ETF is currently generating about -0.08 per unit of risk. If you would invest  9,806  in SPDR SP Health on September 2, 2024 and sell it today you would lose (16.00) from holding SPDR SP Health or give up 0.16% of portfolio value over 90 days.

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

SPDR SP Health  vs.  iShares Pharmaceuticals ETF

SPDR SP Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR SP Health has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical indicators, SPDR SP is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

iShares Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Pharmaceuticals ETF has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical indicators, IShares Pharmaceuticals is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with SPDR SP and IShares Pharmaceuticals

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

The idea behind SPDR SP Health and iShares Pharmaceuticals ETF 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.