Correlation Between IShares SP and SSgA SPDR

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

Diversification Opportunities for IShares SP and SSgA SPDR

0.87

Correlation Coefficient

IShares SP  SSgA SPDR

Very poor diversification

The 3 months correlation between IShares and SSgA is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding iShares SP 500 and SSgA SPDR ETFs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SSgA SPDR ETFs 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 SSgA SPDR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SSgA SPDR ETFs has no effect on the direction of IShares SP i.e., IShares SP and SSgA SPDR go up and down completely randomly.

Pair Corralation between IShares SP and SSgA SPDR

Assuming the 90 days trading horizon iShares SP 500 is expected to under-perform the SSgA SPDR. In addition to that, IShares SP is 1.18 times more volatile than SSgA SPDR ETFs. It trades about -0.13 of its total potential returns per unit of risk. SSgA SPDR ETFs is currently generating about -0.03 per unit of volatility. If you would invest  3,959  in SSgA SPDR ETFs on December 29, 2024 and sell it today you would lose (72.00) from holding SSgA SPDR ETFs or give up 1.82% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.46%
Values	Daily Returns

iShares SP 500  vs.  SSgA SPDR ETFs

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 latest uncertain performance, the Etf's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the exchange-traded fund private investors.

SSgA SPDR ETFs

Risk-Adjusted Performance

Very Weak

Over the last 90 days SSgA SPDR ETFs has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, SSgA SPDR 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 SSgA SPDR

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

The idea behind iShares SP 500 and SSgA SPDR ETFs 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.