Correlation Between IShares Core and SPDR Dow

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

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

Diversification Opportunities for IShares Core and SPDR Dow

0.28

Correlation Coefficient

IShares Core  SPDR Dow

Modest diversification

The 3 months correlation between IShares and SPDR is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core MSCI and SPDR Dow Jones in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Dow Jones and IShares Core 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 Core MSCI are associated (or correlated) with SPDR Dow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Dow Jones has no effect on the direction of IShares Core i.e., IShares Core and SPDR Dow go up and down completely randomly.

Pair Corralation between IShares Core and SPDR Dow

Assuming the 90 days trading horizon IShares Core is expected to generate 2.59 times less return on investment than SPDR Dow. In addition to that, IShares Core is 1.09 times more volatile than SPDR Dow Jones. It trades about 0.06 of its total potential returns per unit of risk. SPDR Dow Jones is currently generating about 0.16 per unit of volatility. If you would invest  35,841  in SPDR Dow Jones on September 13, 2024 and sell it today you would earn a total of  6,434  from holding SPDR Dow Jones or generate 17.95% return on investment over 90 days.

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

iShares Core MSCI  vs.  SPDR Dow Jones

iShares Core MSCI

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core MSCI are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, IShares Core may actually be approaching a critical reversion point that can send shares even higher in January 2025.

SPDR Dow Jones

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Dow Jones are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, SPDR Dow unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares Core and SPDR Dow

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

The idea behind iShares Core MSCI and SPDR Dow Jones 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.