Correlation Between IShares China and SPDR SP

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

Diversification Opportunities for IShares China and SPDR SP

0.67

Correlation Coefficient

IShares China  SPDR SP

Poor diversification

The 3 months correlation between IShares and SPDR is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding iShares China Large Cap and SPDR SP Emerging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Emerging and IShares China 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 China Large Cap 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 Emerging has no effect on the direction of IShares China i.e., IShares China and SPDR SP go up and down completely randomly.

Pair Corralation between IShares China and SPDR SP

Considering the 90-day investment horizon iShares China Large Cap is expected to generate 1.62 times more return on investment than SPDR SP. However, IShares China is 1.62 times more volatile than SPDR SP Emerging. It trades about 0.19 of its potential returns per unit of risk. SPDR SP Emerging is currently generating about 0.02 per unit of risk. If you would invest  3,049  in iShares China Large Cap on December 28, 2024 and sell it today you would earn a total of  619.00  from holding iShares China Large Cap or generate 20.3% return on investment over 90 days.

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

iShares China Large Cap  vs.  SPDR SP Emerging

iShares China Large

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares China Large Cap are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, IShares China demonstrated solid returns over the last few months and may actually be approaching a breakup point.

SPDR SP Emerging

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Emerging are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable primary indicators, SPDR SP 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 China and SPDR SP

The main advantage of trading using opposite IShares China and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares China 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 China Large Cap and SPDR SP Emerging 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.