Correlation Between SPDR SSgA and IShares JP

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

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

Diversification Opportunities for SPDR SSgA and IShares JP

-0.09

Correlation Coefficient

SPDR SSgA  IShares JP

Good diversification

The 3 months correlation between SPDR and IShares is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SSgA Ultra and iShares JP Morgan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares JP Morgan and SPDR SSgA 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 SSgA Ultra are associated (or correlated) with IShares JP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares JP Morgan has no effect on the direction of SPDR SSgA i.e., SPDR SSgA and IShares JP go up and down completely randomly.

Pair Corralation between SPDR SSgA and IShares JP

Given the investment horizon of 90 days SPDR SSgA is expected to generate 2.26 times less return on investment than IShares JP. But when comparing it to its historical volatility, SPDR SSgA Ultra is 7.04 times less risky than IShares JP. It trades about 0.32 of its potential returns per unit of risk. iShares JP Morgan is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  7,665  in iShares JP Morgan on October 5, 2024 and sell it today you would earn a total of  1,285  from holding iShares JP Morgan or generate 16.76% return on investment over 90 days.

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

SPDR SSgA Ultra  vs.  iShares JP Morgan

SPDR SSgA Ultra

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SSgA Ultra are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, SPDR SSgA is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

iShares JP Morgan

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares JP Morgan has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong primary indicators, IShares JP is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with SPDR SSgA and IShares JP

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

The idea behind SPDR SSgA Ultra and iShares JP Morgan 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.