Correlation Between IShares STOXX and SSgA SPDR

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

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

Diversification Opportunities for IShares STOXX and SSgA SPDR

0.63

Correlation Coefficient

IShares STOXX  SSgA SPDR

Poor diversification

The 3 months correlation between IShares and SSgA is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding iShares STOXX Europe and SSgA SPDR ETFs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SSgA SPDR ETFs and IShares STOXX 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 STOXX Europe are associated (or correlated) with SSgA SPDR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SSgA SPDR ETFs has no effect on the direction of IShares STOXX i.e., IShares STOXX and SSgA SPDR go up and down completely randomly.

Pair Corralation between IShares STOXX and SSgA SPDR

Assuming the 90 days trading horizon IShares STOXX is expected to generate 1.1 times less return on investment than SSgA SPDR. In addition to that, IShares STOXX is 1.33 times more volatile than SSgA SPDR ETFs. It trades about 0.12 of its total potential returns per unit of risk. SSgA SPDR ETFs is currently generating about 0.17 per unit of volatility. If you would invest  4,587  in SSgA SPDR ETFs on October 10, 2024 and sell it today you would earn a total of  81.00  from holding SSgA SPDR ETFs or generate 1.77% return on investment over 90 days.

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

iShares STOXX Europe  vs.  SSgA SPDR ETFs

iShares STOXX Europe

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares STOXX Europe are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, IShares STOXX is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

SSgA SPDR ETFs

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SSgA SPDR ETFs are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental drivers, SSgA SPDR is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with IShares STOXX and SSgA SPDR

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

The idea behind iShares STOXX Europe and SSgA SPDR ETFs 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.