Correlation Between SPDR SP and IShares Asia

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

By analyzing existing cross correlation between SPDR SP 500 and iShares Asia 50, you can compare the effects of market volatilities on SPDR SP and IShares Asia 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 SP with a short position of IShares Asia. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and IShares Asia.

Diversification Opportunities for SPDR SP and IShares Asia

0.35

Correlation Coefficient

SPDR SP  IShares Asia

Weak diversification

The 3 months correlation between SPDR and IShares is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 500 and iShares Asia 50 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Asia 50 and SPDR SP 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 SP 500 are associated (or correlated) with IShares Asia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Asia 50 has no effect on the direction of SPDR SP i.e., SPDR SP and IShares Asia go up and down completely randomly.

Pair Corralation between SPDR SP and IShares Asia

Assuming the 90 days trading horizon SPDR SP 500 is expected to generate 0.68 times more return on investment than IShares Asia. However, SPDR SP 500 is 1.47 times less risky than IShares Asia. It trades about 0.28 of its potential returns per unit of risk. iShares Asia 50 is currently generating about 0.17 per unit of risk. If you would invest  82,996  in SPDR SP 500 on September 13, 2024 and sell it today you would earn a total of  11,717  from holding SPDR SP 500 or generate 14.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

SPDR SP 500  vs.  iShares Asia 50

SPDR SP 500

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP 500 are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, SPDR SP unveiled solid returns over the last few months and may actually be approaching a breakup point.

iShares Asia 50

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Asia 50 are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, IShares Asia may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with SPDR SP and IShares Asia

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

The idea behind SPDR SP 500 and iShares Asia 50 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.