Correlation Between IShares SP and IShares SMI

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

Diversification Opportunities for IShares SP and IShares SMI

0.26

Correlation Coefficient

IShares SP  IShares SMI

Modest diversification

The 3 months correlation between IShares and IShares is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding iShares SP 500 and iShares SMI ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SMI ETF 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 SMI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares SMI ETF has no effect on the direction of IShares SP i.e., IShares SP and IShares SMI go up and down completely randomly.

Pair Corralation between IShares SP and IShares SMI

Assuming the 90 days trading horizon iShares SP 500 is expected to under-perform the IShares SMI. In addition to that, IShares SP is 1.36 times more volatile than iShares SMI ETF. It trades about -0.19 of its total potential returns per unit of risk. iShares SMI ETF is currently generating about 0.22 per unit of volatility. If you would invest  13,008  in iShares SMI ETF on December 5, 2024 and sell it today you would earn a total of  468.00  from holding iShares SMI ETF or generate 3.6% return on investment over 90 days.

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

iShares SP 500  vs.  iShares SMI ETF

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 fairly stable basic indicators, IShares SP is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

iShares SMI ETF

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SMI ETF are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal basic indicators, IShares SMI may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with IShares SP and IShares SMI

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

The idea behind iShares SP 500 and iShares SMI ETF 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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.