Correlation Between IShares Morningstar and SPDR SP

Can any of the company-specific risk be diversified away by investing in both IShares Morningstar 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 Morningstar 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 Morningstar Small Cap and SPDR SP 600, you can compare the effects of market volatilities on IShares Morningstar 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 Morningstar with a short position of SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Morningstar and SPDR SP.

Diversification Opportunities for IShares Morningstar and SPDR SP

0.96

Correlation Coefficient

IShares Morningstar  SPDR SP

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 Morningstar Small Cap and SPDR SP 600 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP 600 and IShares Morningstar 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 Morningstar Small 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 600 has no effect on the direction of IShares Morningstar i.e., IShares Morningstar and SPDR SP go up and down completely randomly.

Pair Corralation between IShares Morningstar and SPDR SP

Considering the 90-day investment horizon iShares Morningstar Small Cap is expected to generate 1.05 times more return on investment than SPDR SP. However, IShares Morningstar is 1.05 times more volatile than SPDR SP 600. It trades about -0.21 of its potential returns per unit of risk. SPDR SP 600 is currently generating about -0.26 per unit of risk. If you would invest  5,300  in iShares Morningstar Small Cap on October 8, 2024 and sell it today you would lose (266.00) from holding iShares Morningstar Small Cap or give up 5.02% of portfolio value over 90 days.

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

iShares Morningstar Small Cap  vs.  SPDR SP 600

iShares Morningstar

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Morningstar Small Cap are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward-looking signals, IShares Morningstar is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

SPDR SP 600

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR SP 600 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, SPDR SP is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with IShares Morningstar and SPDR SP

The main advantage of trading using opposite IShares Morningstar and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Morningstar 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 Morningstar Small Cap and SPDR SP 600 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.