Correlation Between SPDR FTSE and IShares MBS

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

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

Diversification Opportunities for SPDR FTSE and IShares MBS

0.86

Correlation Coefficient

SPDR FTSE  IShares MBS

Very poor diversification

The 3 months correlation between SPDR and IShares is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding SPDR FTSE International and iShares MBS ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MBS ETF and SPDR FTSE 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 FTSE International are associated (or correlated) with IShares MBS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MBS ETF has no effect on the direction of SPDR FTSE i.e., SPDR FTSE and IShares MBS go up and down completely randomly.

Pair Corralation between SPDR FTSE and IShares MBS

Considering the 90-day investment horizon SPDR FTSE International is expected to under-perform the IShares MBS. In addition to that, SPDR FTSE is 1.57 times more volatile than iShares MBS ETF. It trades about -0.09 of its total potential returns per unit of risk. iShares MBS ETF is currently generating about -0.07 per unit of volatility. If you would invest  9,497  in iShares MBS ETF on September 4, 2024 and sell it today you would lose (147.00) from holding iShares MBS ETF or give up 1.55% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

SPDR FTSE International  vs.  iShares MBS ETF

SPDR FTSE International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR FTSE International has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward indicators, SPDR FTSE is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

iShares MBS ETF

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with SPDR FTSE and IShares MBS

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

The idea behind SPDR FTSE International and iShares MBS ETF 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.