Correlation Between IShares SPTSX and NBI Canadian

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

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

Diversification Opportunities for IShares SPTSX and NBI Canadian

0.9

Correlation Coefficient

IShares SPTSX  NBI Canadian

Almost no diversification

The 3 months correlation between IShares and NBI is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding iShares SPTSX Composite and NBI Canadian Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NBI Canadian Dividend 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 Composite are associated (or correlated) with NBI Canadian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NBI Canadian Dividend has no effect on the direction of IShares SPTSX i.e., IShares SPTSX and NBI Canadian go up and down completely randomly.

Pair Corralation between IShares SPTSX and NBI Canadian

Assuming the 90 days trading horizon IShares SPTSX is expected to generate 2.09 times less return on investment than NBI Canadian. But when comparing it to its historical volatility, iShares SPTSX Composite is 1.06 times less risky than NBI Canadian. It trades about 0.19 of its potential returns per unit of risk. NBI Canadian Dividend is currently generating about 0.38 of returns per unit of risk over similar time horizon. If you would invest  3,143  in NBI Canadian Dividend on September 13, 2024 and sell it today you would earn a total of  312.00  from holding NBI Canadian Dividend or generate 9.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	96.83%
Values	Daily Returns

iShares SPTSX Composite  vs.  NBI Canadian Dividend

iShares SPTSX Composite

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SPTSX Composite are ranked lower than 15 (%) 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.

NBI Canadian Dividend

Risk-Adjusted Performance

30 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in NBI Canadian Dividend are ranked lower than 30 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, NBI Canadian may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares SPTSX and NBI Canadian

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

The idea behind iShares SPTSX Composite and NBI Canadian Dividend 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.