Correlation Between IShares Pharmaceuticals and SPDR SP

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

Diversification Opportunities for IShares Pharmaceuticals and SPDR SP

-0.15

Correlation Coefficient

IShares Pharmaceuticals  SPDR SP

Good diversification

The 3 months correlation between IShares and SPDR is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding iShares Pharmaceuticals ETF and SPDR SP Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Pharmaceuticals and IShares Pharmaceuticals 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 Pharmaceuticals 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 Pharmaceuticals has no effect on the direction of IShares Pharmaceuticals i.e., IShares Pharmaceuticals and SPDR SP go up and down completely randomly.

Pair Corralation between IShares Pharmaceuticals and SPDR SP

Considering the 90-day investment horizon iShares Pharmaceuticals ETF is expected to under-perform the SPDR SP. But the etf apears to be less risky and, when comparing its historical volatility, iShares Pharmaceuticals ETF is 1.57 times less risky than SPDR SP. The etf trades about -0.15 of its potential returns per unit of risk. The SPDR SP Pharmaceuticals is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  4,409  in SPDR SP Pharmaceuticals on September 14, 2024 and sell it today you would earn a total of  45.00  from holding SPDR SP Pharmaceuticals or generate 1.02% return on investment over 90 days.

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

iShares Pharmaceuticals ETF  vs.  SPDR SP Pharmaceuticals

iShares Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

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

SPDR SP Pharmaceuticals

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Pharmaceuticals are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, SPDR SP is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with IShares Pharmaceuticals and SPDR SP

The main advantage of trading using opposite IShares Pharmaceuticals and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Pharmaceuticals 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 Pharmaceuticals ETF and SPDR SP Pharmaceuticals 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.