Correlation Between SPDR SP and IShares Environmental

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

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

Diversification Opportunities for SPDR SP and IShares Environmental

0.56

Correlation Coefficient

SPDR SP  IShares Environmental

Very weak diversification

The 3 months correlation between SPDR and IShares is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Global and iShares Environmental Infrastr in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Environmental and SPDR SP 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 SP Global are associated (or correlated) with IShares Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Environmental has no effect on the direction of SPDR SP i.e., SPDR SP and IShares Environmental go up and down completely randomly.

Pair Corralation between SPDR SP and IShares Environmental

Considering the 90-day investment horizon SPDR SP Global is expected to generate 1.07 times more return on investment than IShares Environmental. However, SPDR SP is 1.07 times more volatile than iShares Environmental Infrastructure. It trades about -0.05 of its potential returns per unit of risk. iShares Environmental Infrastructure is currently generating about -0.12 per unit of risk. If you would invest  6,219  in SPDR SP Global on November 28, 2024 and sell it today you would lose (179.00) from holding SPDR SP Global or give up 2.88% of portfolio value over 90 days.

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

SPDR SP Global  vs.  iShares Environmental Infrastr

SPDR SP Global

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR SP Global has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong forward indicators, SPDR SP is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

iShares Environmental

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Environmental Infrastructure has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, IShares Environmental is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with SPDR SP and IShares Environmental

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

The idea behind SPDR SP Global and iShares Environmental Infrastructure 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.