Correlation Between SPDR SP and IShares Oil

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

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

Diversification Opportunities for SPDR SP and IShares Oil

0.98

Correlation Coefficient

SPDR SP  IShares Oil

Almost no diversification

The 3 months correlation between SPDR and IShares is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Oil and iShares Oil Equipment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Oil Equipment and SPDR SP 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 SP Oil are associated (or correlated) with IShares Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Oil Equipment has no effect on the direction of SPDR SP i.e., SPDR SP and IShares Oil go up and down completely randomly.

Pair Corralation between SPDR SP and IShares Oil

Considering the 90-day investment horizon SPDR SP Oil is expected to generate 1.1 times more return on investment than IShares Oil. However, SPDR SP is 1.1 times more volatile than iShares Oil Equipment. It trades about 0.03 of its potential returns per unit of risk. iShares Oil Equipment is currently generating about 0.03 per unit of risk. If you would invest  7,772  in SPDR SP Oil on October 24, 2024 and sell it today you would earn a total of  979.00  from holding SPDR SP Oil or generate 12.6% return on investment over 90 days.

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

SPDR SP Oil  vs.  iShares Oil Equipment

SPDR SP Oil

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Oil are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, SPDR SP unveiled solid returns over the last few months and may actually be approaching a breakup point.

iShares Oil Equipment

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Oil Equipment are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain technical and fundamental indicators, IShares Oil showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SPDR SP and IShares Oil

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

The idea behind SPDR SP Oil and iShares Oil Equipment 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..