Correlation Between IShares Biotechnology and SPDR SP

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

Diversification Opportunities for IShares Biotechnology and SPDR SP

0.52

Correlation Coefficient

IShares Biotechnology  SPDR SP

Very weak diversification

The 3 months correlation between IShares and SPDR is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding iShares Biotechnology ETF and SPDR SP Biotech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Biotech and IShares Biotechnology 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 Biotechnology ETF 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 Biotech has no effect on the direction of IShares Biotechnology i.e., IShares Biotechnology and SPDR SP go up and down completely randomly.

Pair Corralation between IShares Biotechnology and SPDR SP

Considering the 90-day investment horizon iShares Biotechnology ETF is expected to generate 0.75 times more return on investment than SPDR SP. However, iShares Biotechnology ETF is 1.33 times less risky than SPDR SP. It trades about 0.0 of its potential returns per unit of risk. SPDR SP Biotech is currently generating about -0.06 per unit of risk. If you would invest  13,155  in iShares Biotechnology ETF on December 28, 2024 and sell it today you would lose (41.00) from holding iShares Biotechnology ETF or give up 0.31% of portfolio value over 90 days.

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

iShares Biotechnology ETF  vs.  SPDR SP Biotech

iShares Biotechnology ETF

Risk-Adjusted Performance

Very Weak

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

SPDR SP Biotech

Risk-Adjusted Performance

Very Weak

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

Pair Trading with IShares Biotechnology and SPDR SP

The main advantage of trading using opposite IShares Biotechnology and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Biotechnology 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 Biotechnology ETF and SPDR SP Biotech 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.