Correlation Between IShares and SPDR FactSet

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

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

Diversification Opportunities for IShares and SPDR FactSet

-0.47

Correlation Coefficient

IShares  SPDR FactSet

Very good diversification

The 3 months correlation between IShares and SPDR is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding IShares and SPDR FactSet Innovative in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR FactSet Innovative and IShares 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 are associated (or correlated) with SPDR FactSet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR FactSet Innovative has no effect on the direction of IShares i.e., IShares and SPDR FactSet go up and down completely randomly.

Pair Corralation between IShares and SPDR FactSet

Given the investment horizon of 90 days IShares is expected to generate 3.58 times less return on investment than SPDR FactSet. But when comparing it to its historical volatility, IShares is 1.25 times less risky than SPDR FactSet. It trades about 0.02 of its potential returns per unit of risk. SPDR FactSet Innovative is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  11,180  in SPDR FactSet Innovative on September 16, 2024 and sell it today you would earn a total of  7,007  from holding SPDR FactSet Innovative or generate 62.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	81.55%
Values	Daily Returns

IShares  vs.  SPDR FactSet Innovative

IShares

Risk-Adjusted Performance

0 of 100

Very Weak

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

SPDR FactSet Innovative

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR FactSet Innovative are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, SPDR FactSet disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares and SPDR FactSet

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

The idea behind IShares and SPDR FactSet Innovative 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.