Correlation Between IShares Oil and SPDR SP

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

Diversification Opportunities for IShares Oil and SPDR SP

0.91

Correlation Coefficient

IShares Oil  SPDR SP

Almost no diversification

The 3 months correlation between IShares and SPDR is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding iShares Oil Gas and SPDR SP Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Oil and IShares Oil 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 Oil Gas 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 Oil has no effect on the direction of IShares Oil i.e., IShares Oil and SPDR SP go up and down completely randomly.

Pair Corralation between IShares Oil and SPDR SP

Considering the 90-day investment horizon IShares Oil is expected to generate 1.06 times less return on investment than SPDR SP. But when comparing it to its historical volatility, iShares Oil Gas is 1.35 times less risky than SPDR SP. It trades about 0.01 of its potential returns per unit of risk. SPDR SP Oil is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  8,284  in SPDR SP Oil on October 11, 2024 and sell it today you would lose (135.00) from holding SPDR SP Oil or give up 1.63% of portfolio value over 90 days.

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

iShares Oil Gas  vs.  SPDR SP Oil

iShares Oil Gas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Oil Gas has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, IShares Oil is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

SPDR SP Oil

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR SP Oil has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, SPDR SP is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with IShares Oil and SPDR SP

The main advantage of trading using opposite IShares Oil and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Oil 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 Oil Gas and SPDR SP Oil 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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.