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

0.78

Correlation Coefficient

IShares Trust  SPDR Series

Poor diversification

The 3 months correlation between IShares and SPDR is 0.78. 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 under-perform the SPDR Series. In addition to that, IShares Trust is 36.67 times more volatile than SPDR Series Trust. It trades about -0.06 of its total potential returns per unit of risk. SPDR Series Trust is currently generating about -0.12 per unit of volatility. If you would invest  521,405  in SPDR Series Trust on October 15, 2024 and sell it today you would lose (305.00) from holding SPDR Series Trust or give up 0.06% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	94.74%
Values	Daily Returns

iShares Trust   vs.  SPDR Series Trust

iShares Trust

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Trust are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, IShares Trust is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

SPDR Series Trust

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Series Trust are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, SPDR Series showed solid returns over the last few months and may actually be approaching a breakup point.

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.

Check out your portfolio center.

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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.