Correlation Between IShares Treasury and SPDR SP

Can any of the company-specific risk be diversified away by investing in both IShares Treasury 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 Treasury 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 Treasury Bond and SPDR SP 500, you can compare the effects of market volatilities on IShares Treasury 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 Treasury with a short position of SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Treasury and SPDR SP.

Diversification Opportunities for IShares Treasury and SPDR SP

-0.72

Correlation Coefficient

IShares Treasury  SPDR SP

Pay attention - limited upside

The 3 months correlation between IShares and SPDR is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding iShares Treasury Bond and SPDR SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP 500 and IShares Treasury 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 Treasury Bond 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 500 has no effect on the direction of IShares Treasury i.e., IShares Treasury and SPDR SP go up and down completely randomly.

Pair Corralation between IShares Treasury and SPDR SP

Assuming the 90 days trading horizon iShares Treasury Bond is expected to under-perform the SPDR SP. In addition to that, IShares Treasury is 1.32 times more volatile than SPDR SP 500. It trades about -0.12 of its total potential returns per unit of risk. SPDR SP 500 is currently generating about 0.27 per unit of volatility. If you would invest  1,038  in SPDR SP 500 on September 13, 2024 and sell it today you would earn a total of  123.00  from holding SPDR SP 500 or generate 11.85% return on investment over 90 days.

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

iShares Treasury Bond  vs.  SPDR SP 500

iShares Treasury Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Treasury Bond has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Etf's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the exchange-traded fund private investors.

SPDR SP 500

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP 500 are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares Treasury and SPDR SP

The main advantage of trading using opposite IShares Treasury and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Treasury 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 Treasury Bond and SPDR SP 500 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.

Check out your portfolio center.

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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.