Correlation Between IShares 3 and SPDR FTSE

Can any of the company-specific risk be diversified away by investing in both IShares 3 and SPDR FTSE 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 3 and SPDR FTSE into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between iShares 3 7 Year and SPDR FTSE International, you can compare the effects of market volatilities on IShares 3 and SPDR FTSE 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 3 with a short position of SPDR FTSE. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares 3 and SPDR FTSE.

Diversification Opportunities for IShares 3 and SPDR FTSE

0.9

Correlation Coefficient

IShares 3  SPDR FTSE

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 3 7 Year and SPDR FTSE International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR FTSE International and IShares 3 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 3 7 Year are associated (or correlated) with SPDR FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR FTSE International has no effect on the direction of IShares 3 i.e., IShares 3 and SPDR FTSE go up and down completely randomly.

Pair Corralation between IShares 3 and SPDR FTSE

Considering the 90-day investment horizon iShares 3 7 Year is expected to generate 0.42 times more return on investment than SPDR FTSE. However, iShares 3 7 Year is 2.39 times less risky than SPDR FTSE. It trades about -0.11 of its potential returns per unit of risk. SPDR FTSE International is currently generating about -0.09 per unit of risk. If you would invest  11,864  in iShares 3 7 Year on September 4, 2024 and sell it today you would lose (186.00) from holding iShares 3 7 Year or give up 1.57% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

iShares 3 7 Year  vs.  SPDR FTSE International

iShares 3 7

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares 3 7 Year has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical and fundamental indicators, IShares 3 is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

SPDR FTSE International

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with IShares 3 and SPDR FTSE

The main advantage of trading using opposite IShares 3 and SPDR FTSE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares 3 position performs unexpectedly, SPDR FTSE 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 FTSE will offset losses from the drop in SPDR FTSE's long position.

The idea behind iShares 3 7 Year and SPDR FTSE International 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.