Correlation Between IShares Russell and SPDR SP

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

By analyzing existing cross correlation between iShares Russell Mid Cap and SPDR SP Dividend, you can compare the effects of market volatilities on IShares Russell and SPDR SP 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 SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Russell and SPDR SP.

Diversification Opportunities for IShares Russell and SPDR SP

-0.17

Correlation Coefficient

IShares Russell  SPDR SP

Good diversification

The 3 months correlation between IShares and SPDR is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding iShares Russell Mid Cap and SPDR SP Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Dividend 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 Mid Cap are associated (or correlated) with SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP Dividend has no effect on the direction of IShares Russell i.e., IShares Russell and SPDR SP go up and down completely randomly.

Pair Corralation between IShares Russell and SPDR SP

Considering the 90-day investment horizon iShares Russell Mid Cap is expected to under-perform the SPDR SP. In addition to that, IShares Russell is 1.06 times more volatile than SPDR SP Dividend. It trades about -0.02 of its total potential returns per unit of risk. SPDR SP Dividend is currently generating about 0.06 per unit of volatility. If you would invest  13,086  in SPDR SP Dividend on December 28, 2024 and sell it today you would earn a total of  393.00  from holding SPDR SP Dividend or generate 3.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

iShares Russell Mid Cap  vs.  SPDR SP Dividend

iShares Russell Mid

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Russell Mid Cap has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, IShares Russell is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

SPDR SP Dividend

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Dividend are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, SPDR SP is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares Russell and SPDR SP

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

The idea behind iShares Russell Mid Cap and SPDR SP Dividend 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.