Correlation Between SPDR SP and IShares UBS

Can any of the company-specific risk be diversified away by investing in both SPDR SP and IShares UBS 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 UBS 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 UBS Government, you can compare the effects of market volatilities on SPDR SP and IShares UBS 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 UBS. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and IShares UBS.

Diversification Opportunities for SPDR SP and IShares UBS

0.3

Correlation Coefficient

SPDR SP  IShares UBS

Weak diversification

The 3 months correlation between SPDR and IShares is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 500 and iShares UBS Government in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares UBS Government 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 UBS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares UBS Government has no effect on the direction of SPDR SP i.e., SPDR SP and IShares UBS go up and down completely randomly.

Pair Corralation between SPDR SP and IShares UBS

Assuming the 90 days trading horizon SPDR SP 500 is expected to under-perform the IShares UBS. In addition to that, SPDR SP is 1.9 times more volatile than iShares UBS Government. It trades about -0.11 of its total potential returns per unit of risk. iShares UBS Government is currently generating about -0.02 per unit of volatility. If you would invest  12,393  in iShares UBS Government on December 29, 2024 and sell it today you would lose (55.00) from holding iShares UBS Government or give up 0.44% of portfolio value over 90 days.

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

SPDR SP 500  vs.  iShares UBS Government

SPDR SP 500

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, SPDR SP is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

iShares UBS Government

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares UBS Government has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental drivers, IShares UBS is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with SPDR SP and IShares UBS

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

The idea behind SPDR SP 500 and iShares UBS Government 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.