Correlation Between IShares Transportation and SPDR SP

Can any of the company-specific risk be diversified away by investing in both IShares Transportation 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 Transportation 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 Transportation Average and SPDR SP Kensho, you can compare the effects of market volatilities on IShares Transportation 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 Transportation with a short position of SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Transportation and SPDR SP.

Diversification Opportunities for IShares Transportation and SPDR SP

0.8

Correlation Coefficient

IShares Transportation  SPDR SP

Very poor diversification

The 3 months correlation between IShares and SPDR is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding iShares Transportation Average and SPDR SP Kensho in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Kensho and IShares Transportation 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 Transportation Average 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 Kensho has no effect on the direction of IShares Transportation i.e., IShares Transportation and SPDR SP go up and down completely randomly.

Pair Corralation between IShares Transportation and SPDR SP

Considering the 90-day investment horizon iShares Transportation Average is expected to generate 0.77 times more return on investment than SPDR SP. However, iShares Transportation Average is 1.3 times less risky than SPDR SP. It trades about -0.05 of its potential returns per unit of risk. SPDR SP Kensho is currently generating about -0.04 per unit of risk. If you would invest  6,832  in iShares Transportation Average on December 26, 2024 and sell it today you would lose (276.00) from holding iShares Transportation Average or give up 4.04% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.36%
Values	Daily Returns

iShares Transportation Average  vs.  SPDR SP Kensho

iShares Transportation

Risk-Adjusted Performance

Very Weak

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

SPDR SP Kensho

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR SP Kensho has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable forward-looking signals, SPDR SP is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with IShares Transportation and SPDR SP

The main advantage of trading using opposite IShares Transportation and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Transportation 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 Transportation Average and SPDR SP Kensho 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.