Correlation Between IShares GNMA and SP Funds

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

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

Diversification Opportunities for IShares GNMA and SP Funds

0.77

Correlation Coefficient

IShares GNMA  SP Funds

Poor diversification

The 3 months correlation between IShares and SPSK is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding iShares GNMA Bond and SP Funds Dow in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SP Funds Dow and IShares GNMA 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 GNMA Bond are associated (or correlated) with SP Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SP Funds Dow has no effect on the direction of IShares GNMA i.e., IShares GNMA and SP Funds go up and down completely randomly.

Pair Corralation between IShares GNMA and SP Funds

Given the investment horizon of 90 days iShares GNMA Bond is expected to generate 0.66 times more return on investment than SP Funds. However, iShares GNMA Bond is 1.52 times less risky than SP Funds. It trades about -0.21 of its potential returns per unit of risk. SP Funds Dow is currently generating about -0.17 per unit of risk. If you would invest  4,355  in iShares GNMA Bond on October 3, 2024 and sell it today you would lose (62.00) from holding iShares GNMA Bond or give up 1.42% of portfolio value over 90 days.

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

iShares GNMA Bond  vs.  SP Funds Dow

iShares GNMA Bond

Risk-Adjusted Performance

0 of 100

Very Weak

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

SP Funds Dow

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SP Funds Dow has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, SP Funds is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with IShares GNMA and SP Funds

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

The idea behind iShares GNMA Bond and SP Funds Dow 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 Global Correlations module to find global opportunities by holding instruments from different markets.