Correlation Between IShares Regional and SPDR SP

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

Diversification Opportunities for IShares Regional and SPDR SP

0.9

Correlation Coefficient

IShares Regional  SPDR SP

Almost no diversification

The 3 months correlation between IShares and SPDR is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding iShares Regional Banks and SPDR SP Regional in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Regional and IShares Regional 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 Regional Banks 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 Regional has no effect on the direction of IShares Regional i.e., IShares Regional and SPDR SP go up and down completely randomly.

Pair Corralation between IShares Regional and SPDR SP

Considering the 90-day investment horizon iShares Regional Banks is expected to under-perform the SPDR SP. But the etf apears to be less risky and, when comparing its historical volatility, iShares Regional Banks is 1.04 times less risky than SPDR SP. The etf trades about -0.07 of its potential returns per unit of risk. The SPDR SP Regional is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  6,002  in SPDR SP Regional on December 28, 2024 and sell it today you would lose (201.00) from holding SPDR SP Regional or give up 3.35% of portfolio value over 90 days.

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

iShares Regional Banks  vs.  SPDR SP Regional

iShares Regional Banks

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Regional Banks has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, IShares Regional is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

SPDR SP Regional

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR SP Regional has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, SPDR SP is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with IShares Regional and SPDR SP

The main advantage of trading using opposite IShares Regional and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Regional 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 Regional Banks and SPDR SP Regional 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.