Correlation Between IShares Core and IShares SPTSX

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

By analyzing existing cross correlation between iShares Core MSCI and iShares SPTSX Composite, you can compare the effects of market volatilities on IShares Core and IShares SPTSX 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 IShares SPTSX. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Core and IShares SPTSX.

Diversification Opportunities for IShares Core and IShares SPTSX

0.68

Correlation Coefficient

IShares Core  IShares SPTSX

Poor diversification

The 3 months correlation between IShares and IShares is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core MSCI and iShares SPTSX Composite in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SPTSX Composite 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 MSCI are associated (or correlated) with IShares SPTSX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares SPTSX Composite has no effect on the direction of IShares Core i.e., IShares Core and IShares SPTSX go up and down completely randomly.

Pair Corralation between IShares Core and IShares SPTSX

Assuming the 90 days trading horizon iShares Core MSCI is expected to generate 1.06 times more return on investment than IShares SPTSX. However, IShares Core is 1.06 times more volatile than iShares SPTSX Composite. It trades about 0.14 of its potential returns per unit of risk. iShares SPTSX Composite is currently generating about 0.11 per unit of risk. If you would invest  2,962  in iShares Core MSCI on December 28, 2024 and sell it today you would earn a total of  161.00  from holding iShares Core MSCI or generate 5.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

iShares Core MSCI  vs.  iShares SPTSX Composite

iShares Core MSCI

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core MSCI are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, IShares Core is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

iShares SPTSX Composite

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SPTSX Composite are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward indicators, IShares SPTSX is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with IShares Core and IShares SPTSX

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

The idea behind iShares Core MSCI and iShares SPTSX Composite 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.

Check out your portfolio center.

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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.