Correlation Between IShares Utilities and SPDR Dow

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

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

Diversification Opportunities for IShares Utilities and SPDR Dow

0.64

Correlation Coefficient

IShares Utilities  SPDR Dow

Poor diversification

The 3 months correlation between IShares and SPDR is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding iShares Utilities ETF and SPDR Dow Jones in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Dow Jones and IShares Utilities 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 Utilities ETF are associated (or correlated) with SPDR Dow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Dow Jones has no effect on the direction of IShares Utilities i.e., IShares Utilities and SPDR Dow go up and down completely randomly.

Pair Corralation between IShares Utilities and SPDR Dow

Considering the 90-day investment horizon iShares Utilities ETF is expected to generate 0.93 times more return on investment than SPDR Dow. However, iShares Utilities ETF is 1.07 times less risky than SPDR Dow. It trades about 0.07 of its potential returns per unit of risk. SPDR Dow Jones is currently generating about 0.0 per unit of risk. If you would invest  9,668  in iShares Utilities ETF on December 24, 2024 and sell it today you would earn a total of  371.00  from holding iShares Utilities ETF or generate 3.84% return on investment over 90 days.

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

iShares Utilities ETF  vs.  SPDR Dow Jones

iShares Utilities ETF

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Utilities ETF are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental indicators, IShares Utilities is not utilizing all of its potentials. The new stock price uproar, may contribute to short-horizon losses for the private investors.

SPDR Dow Jones

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR Dow Jones has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, SPDR Dow is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with IShares Utilities and SPDR Dow

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

The idea behind iShares Utilities ETF and SPDR Dow Jones 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.