Correlation Between IShares SPTSX and Energy Leaders

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

By analyzing existing cross correlation between iShares SPTSX Capped and Energy Leaders Plus, you can compare the effects of market volatilities on IShares SPTSX and Energy Leaders 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 SPTSX with a short position of Energy Leaders. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares SPTSX and Energy Leaders.

Diversification Opportunities for IShares SPTSX and Energy Leaders

0.72

Correlation Coefficient

IShares SPTSX  Energy Leaders

Poor diversification

The 3 months correlation between IShares and Energy is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding iShares SPTSX Capped and Energy Leaders Plus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Leaders Plus and IShares SPTSX 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 SPTSX Capped are associated (or correlated) with Energy Leaders. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Leaders Plus has no effect on the direction of IShares SPTSX i.e., IShares SPTSX and Energy Leaders go up and down completely randomly.

Pair Corralation between IShares SPTSX and Energy Leaders

Assuming the 90 days trading horizon IShares SPTSX is expected to generate 1.81 times less return on investment than Energy Leaders. In addition to that, IShares SPTSX is 1.28 times more volatile than Energy Leaders Plus. It trades about 0.06 of its total potential returns per unit of risk. Energy Leaders Plus is currently generating about 0.13 per unit of volatility. If you would invest  297.00  in Energy Leaders Plus on December 30, 2024 and sell it today you would earn a total of  25.00  from holding Energy Leaders Plus or generate 8.42% return on investment over 90 days.

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

iShares SPTSX Capped  vs.  Energy Leaders Plus

iShares SPTSX Capped

Risk-Adjusted Performance

Insignificant

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

Energy Leaders Plus

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Leaders Plus are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, Energy Leaders may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with IShares SPTSX and Energy Leaders

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

The idea behind iShares SPTSX Capped and Energy Leaders Plus 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.