Correlation Between SPDR SP and IShares Trust

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

Diversification Opportunities for SPDR SP and IShares Trust

0.73

Correlation Coefficient

SPDR SP  IShares Trust

Poor diversification

The 3 months correlation between SPDR and IShares is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 500 and iShares Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Trust 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 Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Trust has no effect on the direction of SPDR SP i.e., SPDR SP and IShares Trust go up and down completely randomly.

Pair Corralation between SPDR SP and IShares Trust

Assuming the 90 days trading horizon SPDR SP 500 is expected to generate 1.32 times more return on investment than IShares Trust. However, SPDR SP is 1.32 times more volatile than iShares Trust . It trades about 0.18 of its potential returns per unit of risk. iShares Trust is currently generating about 0.04 per unit of risk. If you would invest  1,085,741  in SPDR SP 500 on September 12, 2024 and sell it today you would earn a total of  128,939  from holding SPDR SP 500 or generate 11.88% return on investment over 90 days.

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

SPDR SP 500  vs.  iShares Trust

SPDR SP 500

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP 500 are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

iShares Trust

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Trust are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, IShares Trust is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with SPDR SP and IShares Trust

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

The idea behind SPDR SP 500 and iShares Trust 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.