Correlation Between SPDR Dow and IShares Russell

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

By analyzing existing cross correlation between SPDR Dow Jones and iShares Russell 2000, you can compare the effects of market volatilities on SPDR Dow and IShares Russell 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 Dow with a short position of IShares Russell. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR Dow and IShares Russell.

Diversification Opportunities for SPDR Dow and IShares Russell

0.58

Correlation Coefficient

SPDR Dow  IShares Russell

Very weak diversification

The 3 months correlation between SPDR and IShares is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Dow Jones and iShares Russell 2000 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Russell 2000 and SPDR Dow 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 Dow Jones are associated (or correlated) with IShares Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Russell 2000 has no effect on the direction of SPDR Dow i.e., SPDR Dow and IShares Russell go up and down completely randomly.

Pair Corralation between SPDR Dow and IShares Russell

Considering the 90-day investment horizon SPDR Dow Jones is expected to generate 0.67 times more return on investment than IShares Russell. However, SPDR Dow Jones is 1.48 times less risky than IShares Russell. It trades about -0.07 of its potential returns per unit of risk. iShares Russell 2000 is currently generating about -0.17 per unit of risk. If you would invest  44,796  in SPDR Dow Jones on November 29, 2024 and sell it today you would lose (1,362) from holding SPDR Dow Jones or give up 3.04% of portfolio value over 90 days.

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

SPDR Dow Jones  vs.  iShares Russell 2000

SPDR Dow Jones

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR Dow Jones has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong forward indicators, SPDR Dow is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

iShares Russell 2000

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Russell 2000 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

Pair Trading with SPDR Dow and IShares Russell

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

The idea behind SPDR Dow Jones and iShares Russell 2000 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.