Correlation Between SPDR SP and IShares Insurance

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

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

Diversification Opportunities for SPDR SP and IShares Insurance

0.59

Correlation Coefficient

SPDR SP  IShares Insurance

Very weak diversification

The 3 months correlation between SPDR and IShares is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Capital and iShares Insurance ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Insurance ETF 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 Capital are associated (or correlated) with IShares Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Insurance ETF has no effect on the direction of SPDR SP i.e., SPDR SP and IShares Insurance go up and down completely randomly.

Pair Corralation between SPDR SP and IShares Insurance

Considering the 90-day investment horizon SPDR SP Capital is expected to under-perform the IShares Insurance. In addition to that, SPDR SP is 1.43 times more volatile than iShares Insurance ETF. It trades about -0.19 of its total potential returns per unit of risk. iShares Insurance ETF is currently generating about -0.12 per unit of volatility. If you would invest  12,840  in iShares Insurance ETF on October 12, 2024 and sell it today you would lose (294.00) from holding iShares Insurance ETF or give up 2.29% of portfolio value over 90 days.

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

SPDR SP Capital  vs.  iShares Insurance ETF

SPDR SP Capital

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Capital are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, SPDR SP is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

iShares Insurance ETF

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Insurance ETF has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, IShares Insurance is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with SPDR SP and IShares Insurance

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

The idea behind SPDR SP Capital and iShares Insurance ETF 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.