Correlation Between SPDR SP and IShares Focused

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

By analyzing existing cross correlation between SPDR SP 400 and iShares Focused Value, you can compare the effects of market volatilities on SPDR SP and IShares Focused 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 Focused. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and IShares Focused.

Diversification Opportunities for SPDR SP and IShares Focused

0.87

Correlation Coefficient

SPDR SP  IShares Focused

Very poor diversification

The 3 months correlation between SPDR and IShares is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 400 and iShares Focused Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Focused Value 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 400 are associated (or correlated) with IShares Focused. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Focused Value has no effect on the direction of SPDR SP i.e., SPDR SP and IShares Focused go up and down completely randomly.

Pair Corralation between SPDR SP and IShares Focused

Given the investment horizon of 90 days SPDR SP 400 is expected to under-perform the IShares Focused. In addition to that, SPDR SP is 1.07 times more volatile than iShares Focused Value. It trades about -0.03 of its total potential returns per unit of risk. iShares Focused Value is currently generating about 0.03 per unit of volatility. If you would invest  6,927  in iShares Focused Value on December 28, 2024 and sell it today you would earn a total of  101.90  from holding iShares Focused Value or generate 1.47% return on investment over 90 days.

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

SPDR SP 400  vs.  iShares Focused Value

SPDR SP 400

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR SP 400 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, SPDR SP is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

iShares Focused Value

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Focused Value are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, IShares Focused is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with SPDR SP and IShares Focused

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

The idea behind SPDR SP 400 and iShares Focused Value 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.