Correlation Between IShares Russell and SPDR Portfolio

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

By analyzing existing cross correlation between iShares Russell 1000 and SPDR Portfolio SP, you can compare the effects of market volatilities on IShares Russell and SPDR Portfolio 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 Russell with a short position of SPDR Portfolio. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Russell and SPDR Portfolio.

Diversification Opportunities for IShares Russell and SPDR Portfolio

0.96

Correlation Coefficient

IShares Russell  SPDR Portfolio

Almost no diversification

The 3 months correlation between IShares and SPDR is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding iShares Russell 1000 and SPDR Portfolio SP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Portfolio SP and IShares Russell 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 Russell 1000 are associated (or correlated) with SPDR Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Portfolio SP has no effect on the direction of IShares Russell i.e., IShares Russell and SPDR Portfolio go up and down completely randomly.

Pair Corralation between IShares Russell and SPDR Portfolio

Considering the 90-day investment horizon IShares Russell is expected to generate 12.0 times less return on investment than SPDR Portfolio. But when comparing it to its historical volatility, iShares Russell 1000 is 1.01 times less risky than SPDR Portfolio. It trades about 0.0 of its potential returns per unit of risk. SPDR Portfolio SP is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  8,719  in SPDR Portfolio SP on November 28, 2024 and sell it today you would earn a total of  50.00  from holding SPDR Portfolio SP or generate 0.57% return on investment over 90 days.

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

iShares Russell 1000  vs.  SPDR Portfolio SP

iShares Russell 1000

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Russell 1000 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, IShares Russell is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

SPDR Portfolio SP

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Portfolio SP are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, SPDR Portfolio is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with IShares Russell and SPDR Portfolio

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

The idea behind iShares Russell 1000 and SPDR Portfolio SP 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.