Correlation Between IShares VII and SPDR SP

Can any of the company-specific risk be diversified away by investing in both IShares VII 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 VII 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 VII PLC and SPDR SP Technology, you can compare the effects of market volatilities on IShares VII 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 VII with a short position of SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares VII and SPDR SP.

Diversification Opportunities for IShares VII and SPDR SP

0.55

Correlation Coefficient

IShares VII  SPDR SP

Very weak diversification

The 3 months correlation between IShares and SPDR is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding iShares VII PLC and SPDR SP Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Technology and IShares VII 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 VII PLC 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 Technology has no effect on the direction of IShares VII i.e., IShares VII and SPDR SP go up and down completely randomly.

Pair Corralation between IShares VII and SPDR SP

Assuming the 90 days trading horizon IShares VII is expected to generate 1.44 times less return on investment than SPDR SP. But when comparing it to its historical volatility, iShares VII PLC is 1.02 times less risky than SPDR SP. It trades about 0.08 of its potential returns per unit of risk. SPDR SP Technology is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  6,674  in SPDR SP Technology on September 28, 2024 and sell it today you would earn a total of  5,730  from holding SPDR SP Technology or generate 85.86% return on investment over 90 days.

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

iShares VII PLC  vs.  SPDR SP Technology

iShares VII PLC

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares VII PLC are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, IShares VII is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

SPDR SP Technology

Risk-Adjusted Performance

7 of 100

OK

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

Pair Trading with IShares VII and SPDR SP

The main advantage of trading using opposite IShares VII and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares VII 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 VII PLC and SPDR SP Technology 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.