Correlation Between IQ Merger and SPDR SP

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

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

Diversification Opportunities for IQ Merger and SPDR SP

0.34

Correlation Coefficient

IQ Merger  SPDR SP

Weak diversification

The 3 months correlation between MNA and SPDR is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding IQ Merger Arbitrage and SPDR SP Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Global and IQ Merger 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 IQ Merger Arbitrage 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 Global has no effect on the direction of IQ Merger i.e., IQ Merger and SPDR SP go up and down completely randomly.

Pair Corralation between IQ Merger and SPDR SP

Considering the 90-day investment horizon IQ Merger Arbitrage is expected to generate 0.19 times more return on investment than SPDR SP. However, IQ Merger Arbitrage is 5.31 times less risky than SPDR SP. It trades about 0.02 of its potential returns per unit of risk. SPDR SP Global is currently generating about -0.22 per unit of risk. If you would invest  3,285  in IQ Merger Arbitrage on September 19, 2024 and sell it today you would earn a total of  4.00  from holding IQ Merger Arbitrage or generate 0.12% return on investment over 90 days.

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

IQ Merger Arbitrage  vs.  SPDR SP Global

IQ Merger Arbitrage

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IQ Merger Arbitrage has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, IQ Merger is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

SPDR SP Global

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR SP Global has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Etf's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the ETF retail investors.

Pair Trading with IQ Merger and SPDR SP

The main advantage of trading using opposite IQ Merger and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IQ Merger 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 IQ Merger Arbitrage and SPDR SP Global 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.