Correlation Between IShares SP and IShares III

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

By analyzing existing cross correlation between iShares SP 500 and iShares III Public, you can compare the effects of market volatilities on IShares SP and IShares III 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 SP with a short position of IShares III. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares SP and IShares III.

Diversification Opportunities for IShares SP and IShares III

-0.05

Correlation Coefficient

IShares SP  IShares III

Good diversification

The 3 months correlation between IShares and IShares is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding iShares SP 500 and iShares III Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares III Public and IShares SP 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 SP 500 are associated (or correlated) with IShares III. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares III Public has no effect on the direction of IShares SP i.e., IShares SP and IShares III go up and down completely randomly.

Pair Corralation between IShares SP and IShares III

Assuming the 90 days trading horizon iShares SP 500 is expected to generate 2.0 times more return on investment than IShares III. However, IShares SP is 2.0 times more volatile than iShares III Public. It trades about -0.03 of its potential returns per unit of risk. iShares III Public is currently generating about -0.07 per unit of risk. If you would invest  5,734  in iShares SP 500 on December 2, 2024 and sell it today you would lose (95.00) from holding iShares SP 500 or give up 1.66% of portfolio value over 90 days.

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

iShares SP 500  vs.  iShares III Public

iShares SP 500

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, IShares SP is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

iShares III Public

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares III Public has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, IShares III is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with IShares SP and IShares III

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

The idea behind iShares SP 500 and iShares III Public 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.