Correlation Between IShares Asia and SPDR SP

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

By analyzing existing cross correlation between iShares Asia 50 and SPDR SP Emerging, you can compare the effects of market volatilities on IShares Asia and SPDR 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 IShares Asia with a short position of SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Asia and SPDR SP.

Diversification Opportunities for IShares Asia and SPDR SP

0.99

Correlation Coefficient

IShares Asia  SPDR SP

No risk reduction

The 3 months correlation between IShares and SPDR is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding iShares Asia 50 and SPDR SP Emerging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Emerging and IShares Asia 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 Asia 50 are associated (or correlated) with SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP Emerging has no effect on the direction of IShares Asia i.e., IShares Asia and SPDR SP go up and down completely randomly.

Pair Corralation between IShares Asia and SPDR SP

Considering the 90-day investment horizon iShares Asia 50 is expected to under-perform the SPDR SP. In addition to that, IShares Asia is 1.4 times more volatile than SPDR SP Emerging. It trades about -0.16 of its total potential returns per unit of risk. SPDR SP Emerging is currently generating about -0.16 per unit of volatility. If you would invest  12,167  in SPDR SP Emerging on August 30, 2024 and sell it today you would lose (479.00) from holding SPDR SP Emerging or give up 3.94% of portfolio value over 90 days.

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

iShares Asia 50  vs.  SPDR SP Emerging

iShares Asia 50

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Asia 50 are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong forward indicators, IShares Asia is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

SPDR SP Emerging

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Emerging are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable primary indicators, SPDR SP is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with IShares Asia and SPDR SP

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

The idea behind iShares Asia 50 and SPDR SP Emerging 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 Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.