Correlation Between IShares Core and SPDR ICE

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

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

Diversification Opportunities for IShares Core and SPDR ICE

-0.6

Correlation Coefficient

IShares Core  SPDR ICE

Excellent diversification

The 3 months correlation between IShares and SPDR is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core SP and SPDR ICE BofA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR ICE BofA and IShares Core 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 iShares Core SP are associated (or correlated) with SPDR ICE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR ICE BofA has no effect on the direction of IShares Core i.e., IShares Core and SPDR ICE go up and down completely randomly.

Pair Corralation between IShares Core and SPDR ICE

Assuming the 90 days trading horizon iShares Core SP is expected to under-perform the SPDR ICE. In addition to that, IShares Core is 6.9 times more volatile than SPDR ICE BofA. It trades about -0.16 of its total potential returns per unit of risk. SPDR ICE BofA is currently generating about 0.22 per unit of volatility. If you would invest  2,901  in SPDR ICE BofA on December 23, 2024 and sell it today you would earn a total of  50.00  from holding SPDR ICE BofA or generate 1.72% return on investment over 90 days.

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

iShares Core SP  vs.  SPDR ICE BofA

iShares Core SP

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Core SP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Etf's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the Exchange Traded Fund stockholders.

SPDR ICE BofA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR ICE BofA are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, SPDR ICE is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with IShares Core and SPDR ICE

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

The idea behind iShares Core SP and SPDR ICE BofA 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.