Correlation Between SPDR Portfolio and IShares Treasury

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

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

Diversification Opportunities for SPDR Portfolio and IShares Treasury

0.93

Correlation Coefficient

SPDR Portfolio  IShares Treasury

Almost no diversification

The 3 months correlation between SPDR and IShares is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Portfolio Mortgage and iShares Treasury Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Treasury Bond and SPDR Portfolio 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 Portfolio Mortgage are associated (or correlated) with IShares Treasury. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Treasury Bond has no effect on the direction of SPDR Portfolio i.e., SPDR Portfolio and IShares Treasury go up and down completely randomly.

Pair Corralation between SPDR Portfolio and IShares Treasury

Given the investment horizon of 90 days SPDR Portfolio is expected to generate 1.05 times less return on investment than IShares Treasury. But when comparing it to its historical volatility, SPDR Portfolio Mortgage is 1.49 times less risky than IShares Treasury. It trades about 0.1 of its potential returns per unit of risk. iShares Treasury Bond is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,235  in iShares Treasury Bond on December 28, 2024 and sell it today you would earn a total of  45.00  from holding iShares Treasury Bond or generate 2.01% return on investment over 90 days.

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

SPDR Portfolio Mortgage  vs.  iShares Treasury Bond

SPDR Portfolio Mortgage

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Portfolio Mortgage are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong primary indicators, SPDR Portfolio is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

iShares Treasury Bond

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Treasury Bond are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, IShares Treasury is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with SPDR Portfolio and IShares Treasury

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

The idea behind SPDR Portfolio Mortgage and iShares Treasury Bond 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.