Correlation Between IShares Europe and SPDR SP

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

Diversification Opportunities for IShares Europe and SPDR SP

0.76

Correlation Coefficient

IShares Europe  SPDR SP

Poor diversification

The 3 months correlation between IShares and SPDR is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding iShares Europe ETF and SPDR SP Emerging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Emerging and IShares Europe 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 Europe 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 Emerging has no effect on the direction of IShares Europe i.e., IShares Europe and SPDR SP go up and down completely randomly.

Pair Corralation between IShares Europe and SPDR SP

Considering the 90-day investment horizon IShares Europe is expected to generate 1.19 times less return on investment than SPDR SP. But when comparing it to its historical volatility, iShares Europe ETF is 1.14 times less risky than SPDR SP. It trades about 0.05 of its potential returns per unit of risk. SPDR SP Emerging is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  9,509  in SPDR SP Emerging on September 26, 2024 and sell it today you would earn a total of  2,259  from holding SPDR SP Emerging or generate 23.76% return on investment over 90 days.

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

iShares Europe ETF  vs.  SPDR SP Emerging

iShares Europe ETF

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Europe ETF has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Etf's technical and fundamental indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the fund sophisticated investors.

SPDR SP Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR SP Emerging has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable primary indicators, SPDR SP is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with IShares Europe and SPDR SP

The main advantage of trading using opposite IShares Europe and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Europe 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 Europe ETF and SPDR SP Emerging 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.