Correlation Between IShares Trust and SPDR Series

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

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

Diversification Opportunities for IShares Trust and SPDR Series

0.57

Correlation Coefficient

IShares Trust  SPDR Series

Very weak diversification

The 3 months correlation between IShares and SPDR is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding iShares Trust and SPDR Series Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Series Trust and IShares Trust 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 Trust are associated (or correlated) with SPDR Series. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Series Trust has no effect on the direction of IShares Trust i.e., IShares Trust and SPDR Series go up and down completely randomly.

Pair Corralation between IShares Trust and SPDR Series

Assuming the 90 days trading horizon iShares Trust is expected to generate 0.65 times more return on investment than SPDR Series. However, iShares Trust is 1.55 times less risky than SPDR Series. It trades about -0.11 of its potential returns per unit of risk. SPDR Series Trust is currently generating about -0.19 per unit of risk. If you would invest  1,220,447  in iShares Trust on December 30, 2024 and sell it today you would lose (81,547) from holding iShares Trust or give up 6.68% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

iShares Trust   vs.  SPDR Series Trust

iShares Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

SPDR Series Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR Series Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Etf's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the ETF investors.

Pair Trading with IShares Trust and SPDR Series

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

The idea behind iShares Trust and SPDR Series Trust 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.