Correlation Between SPDR SP and IShares Semiconductor

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

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

Diversification Opportunities for SPDR SP and IShares Semiconductor

-0.64

Correlation Coefficient

SPDR SP  IShares Semiconductor

Excellent diversification

The 3 months correlation between SPDR and IShares is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Software and iShares Semiconductor ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Semiconductor ETF 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 Software are associated (or correlated) with IShares Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Semiconductor ETF has no effect on the direction of SPDR SP i.e., SPDR SP and IShares Semiconductor go up and down completely randomly.

Pair Corralation between SPDR SP and IShares Semiconductor

Considering the 90-day investment horizon SPDR SP Software is expected to generate 0.89 times more return on investment than IShares Semiconductor. However, SPDR SP Software is 1.13 times less risky than IShares Semiconductor. It trades about 0.21 of its potential returns per unit of risk. iShares Semiconductor ETF is currently generating about -0.03 per unit of risk. If you would invest  15,867  in SPDR SP Software on September 22, 2024 and sell it today you would earn a total of  3,592  from holding SPDR SP Software or generate 22.64% return on investment over 90 days.

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

SPDR SP Software  vs.  iShares Semiconductor ETF

SPDR SP Software

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Software are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, SPDR SP showed solid returns over the last few months and may actually be approaching a breakup point.

iShares Semiconductor ETF

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with SPDR SP and IShares Semiconductor

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

The idea behind SPDR SP Software and iShares Semiconductor 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.