Correlation Between IShares International and SP Funds

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

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

Diversification Opportunities for IShares International and SP Funds

0.74

Correlation Coefficient

IShares International  SP Funds

Poor diversification

The 3 months correlation between IShares and SPSK is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding iShares International Treasury and SP Funds Dow in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SP Funds Dow and IShares International 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 International Treasury are associated (or correlated) with SP Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SP Funds Dow has no effect on the direction of IShares International i.e., IShares International and SP Funds go up and down completely randomly.

Pair Corralation between IShares International and SP Funds

Given the investment horizon of 90 days iShares International Treasury is expected to generate 1.59 times more return on investment than SP Funds. However, IShares International is 1.59 times more volatile than SP Funds Dow. It trades about 0.08 of its potential returns per unit of risk. SP Funds Dow is currently generating about 0.1 per unit of risk. If you would invest  3,849  in iShares International Treasury on December 28, 2024 and sell it today you would earn a total of  100.00  from holding iShares International Treasury or generate 2.6% return on investment over 90 days.

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

iShares International Treasury  vs.  SP Funds Dow

iShares International

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares International Treasury are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, IShares International is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

SP Funds Dow

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SP Funds Dow are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, SP Funds is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with IShares International and SP Funds

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

The idea behind iShares International Treasury and SP Funds Dow 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.