Correlation Between SPDR SP and IShares Regional

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

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

Diversification Opportunities for SPDR SP and IShares Regional

0.85

Correlation Coefficient

SPDR SP  IShares Regional

Very poor diversification

The 3 months correlation between SPDR and IShares is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Bank and iShares Regional Banks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Regional Banks and SPDR SP 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 SPDR SP Bank are associated (or correlated) with IShares Regional. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Regional Banks has no effect on the direction of SPDR SP i.e., SPDR SP and IShares Regional go up and down completely randomly.

Pair Corralation between SPDR SP and IShares Regional

Considering the 90-day investment horizon SPDR SP Bank is expected to generate 0.98 times more return on investment than IShares Regional. However, SPDR SP Bank is 1.02 times less risky than IShares Regional. It trades about -0.02 of its potential returns per unit of risk. iShares Regional Banks is currently generating about -0.09 per unit of risk. If you would invest  5,510  in SPDR SP Bank on December 29, 2024 and sell it today you would lose (149.00) from holding SPDR SP Bank or give up 2.7% of portfolio value over 90 days.

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

SPDR SP Bank  vs.  iShares Regional Banks

SPDR SP Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR SP Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, SPDR SP is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

iShares Regional Banks

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Regional Banks has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Etf's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the exchange-traded fund private investors.

Pair Trading with SPDR SP and IShares Regional

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

The idea behind SPDR SP Bank and iShares Regional Banks 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.