Correlation Between SPDR SP and IShares Fallen

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

Diversification Opportunities for SPDR SP and IShares Fallen

0.7

Correlation Coefficient

SPDR SP  IShares Fallen

Poor diversification

The 3 months correlation between SPDR and IShares is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 500 and iShares Fallen Angels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Fallen Angels 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 Fallen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Fallen Angels has no effect on the direction of SPDR SP i.e., SPDR SP and IShares Fallen go up and down completely randomly.

Pair Corralation between SPDR SP and IShares Fallen

Considering the 90-day investment horizon SPDR SP 500 is expected to generate 2.71 times more return on investment than IShares Fallen. However, SPDR SP is 2.71 times more volatile than iShares Fallen Angels. It trades about 0.19 of its potential returns per unit of risk. iShares Fallen Angels is currently generating about 0.06 per unit of risk. If you would invest  56,135  in SPDR SP 500 on September 17, 2024 and sell it today you would earn a total of  4,624  from holding SPDR SP 500 or generate 8.24% 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 Fallen Angels

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 unfluctuating basic indicators, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

iShares Fallen Angels

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Fallen Angels are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy essential indicators, IShares Fallen is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with SPDR SP and IShares Fallen

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

The idea behind SPDR SP 500 and iShares Fallen Angels 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.