Correlation Between SPDR Russell and IShares SP

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

By analyzing existing cross correlation between SPDR Russell 1000 and iShares SP Mid Cap, you can compare the effects of market volatilities on SPDR Russell and IShares 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 SPDR Russell with a short position of IShares SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR Russell and IShares SP.

Diversification Opportunities for SPDR Russell and IShares SP

0.77

Correlation Coefficient

SPDR Russell  IShares SP

Poor diversification

The 3 months correlation between SPDR and IShares is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Russell 1000 and iShares SP Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SP Mid and SPDR Russell 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 Russell 1000 are associated (or correlated) with IShares SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares SP Mid has no effect on the direction of SPDR Russell i.e., SPDR Russell and IShares SP go up and down completely randomly.

Pair Corralation between SPDR Russell and IShares SP

Given the investment horizon of 90 days SPDR Russell is expected to generate 1.06 times less return on investment than IShares SP. But when comparing it to its historical volatility, SPDR Russell 1000 is 1.25 times less risky than IShares SP. It trades about 0.06 of its potential returns per unit of risk. iShares SP Mid Cap is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  9,743  in iShares SP Mid Cap on December 28, 2024 and sell it today you would earn a total of  2,370  from holding iShares SP Mid Cap or generate 24.33% return on investment over 90 days.

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

SPDR Russell 1000  vs.  iShares SP Mid Cap

SPDR Russell 1000

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Russell 1000 are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical and fundamental indicators, SPDR Russell is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

iShares SP Mid

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares SP Mid Cap has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady forward-looking indicators, IShares SP is not utilizing all of its potentials. The latest stock price chaos, may contribute to medium-term losses for the stakeholders.

Pair Trading with SPDR Russell and IShares SP

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

The idea behind SPDR Russell 1000 and iShares SP Mid Cap 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.