Correlation Between SPDR Dow and IShares International

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

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

Diversification Opportunities for SPDR Dow and IShares International

0.92

Correlation Coefficient

SPDR Dow  IShares International

Almost no diversification

The 3 months correlation between SPDR and IShares is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Dow Jones and iShares International Develope in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares International and SPDR Dow 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 Dow Jones are associated (or correlated) with IShares International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares International has no effect on the direction of SPDR Dow i.e., SPDR Dow and IShares International go up and down completely randomly.

Pair Corralation between SPDR Dow and IShares International

Considering the 90-day investment horizon SPDR Dow Jones is expected to generate 1.0 times more return on investment than IShares International. However, SPDR Dow Jones is 1.0 times less risky than IShares International. It trades about 0.04 of its potential returns per unit of risk. iShares International Developed is currently generating about 0.0 per unit of risk. If you would invest  3,813  in SPDR Dow Jones on December 3, 2024 and sell it today you would earn a total of  684.00  from holding SPDR Dow Jones or generate 17.94% return on investment over 90 days.

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

SPDR Dow Jones  vs.  iShares International Develope

SPDR Dow Jones

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR Dow Jones has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, SPDR Dow is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

iShares International

Risk-Adjusted Performance

Very Weak

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

Pair Trading with SPDR Dow and IShares International

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

The idea behind SPDR Dow Jones and iShares International Developed 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.