Correlation Between SPTSX Dividend and IShares SPTSX

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

By analyzing existing cross correlation between SPTSX Dividend Aristocrats and iShares SPTSX 60, you can compare the effects of market volatilities on SPTSX Dividend and IShares SPTSX 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 SPTSX Dividend with a short position of IShares SPTSX. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPTSX Dividend and IShares SPTSX.

Diversification Opportunities for SPTSX Dividend and IShares SPTSX

0.96

Correlation Coefficient

SPTSX Dividend  IShares SPTSX

Almost no diversification

The 3 months correlation between SPTSX and IShares is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding SPTSX Dividend Aristocrats and iShares SPTSX 60 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SPTSX 60 and SPTSX Dividend 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 SPTSX Dividend Aristocrats are associated (or correlated) with IShares SPTSX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares SPTSX 60 has no effect on the direction of SPTSX Dividend i.e., SPTSX Dividend and IShares SPTSX go up and down completely randomly.

Pair Corralation between SPTSX Dividend and IShares SPTSX

Assuming the 90 days trading horizon SPTSX Dividend is expected to generate 1.11 times less return on investment than IShares SPTSX. But when comparing it to its historical volatility, SPTSX Dividend Aristocrats is 1.18 times less risky than IShares SPTSX. It trades about 0.37 of its potential returns per unit of risk. iShares SPTSX 60 is currently generating about 0.35 of returns per unit of risk over similar time horizon. If you would invest  3,470  in iShares SPTSX 60 on September 3, 2024 and sell it today you would earn a total of  408.00  from holding iShares SPTSX 60 or generate 11.76% return on investment over 90 days.

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

SPTSX Dividend Aristocrats  vs.  iShares SPTSX 60

Pair Trading with SPTSX Dividend and IShares SPTSX

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

The idea behind SPTSX Dividend Aristocrats and iShares SPTSX 60 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.