Correlation Between IShares Semiconductor and SPDR SP

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

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

Diversification Opportunities for IShares Semiconductor and SPDR SP

0.83

Correlation Coefficient

IShares Semiconductor  SPDR SP

Very poor diversification

The 3 months correlation between IShares and SPDR is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding iShares Semiconductor ETF and SPDR SP Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Semiconductor and IShares Semiconductor 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 iShares Semiconductor ETF 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 Semiconductor has no effect on the direction of IShares Semiconductor i.e., IShares Semiconductor and SPDR SP go up and down completely randomly.

Pair Corralation between IShares Semiconductor and SPDR SP

Given the investment horizon of 90 days iShares Semiconductor ETF is expected to generate 0.91 times more return on investment than SPDR SP. However, iShares Semiconductor ETF is 1.1 times less risky than SPDR SP. It trades about -0.03 of its potential returns per unit of risk. SPDR SP Semiconductor is currently generating about -0.07 per unit of risk. If you would invest  21,559  in iShares Semiconductor ETF on December 18, 2024 and sell it today you would lose (1,115) from holding iShares Semiconductor ETF or give up 5.17% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.33%
Values	Daily Returns

iShares Semiconductor ETF  vs.  SPDR SP Semiconductor

iShares Semiconductor ETF

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Semiconductor ETF has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, IShares Semiconductor is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

SPDR SP Semiconductor

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR SP Semiconductor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Etf's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the fund shareholders.

Pair Trading with IShares Semiconductor and SPDR SP

The main advantage of trading using opposite IShares Semiconductor and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Semiconductor 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 iShares Semiconductor ETF and SPDR SP Semiconductor 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.