Correlation Between SPDR SP and IShares Home

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

By analyzing existing cross correlation between SPDR SP Metals and iShares Home Construction, you can compare the effects of market volatilities on SPDR SP and IShares Home 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 Home. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and IShares Home.

Diversification Opportunities for SPDR SP and IShares Home

0.61

Correlation Coefficient

SPDR SP  IShares Home

Poor diversification

The 3 months correlation between SPDR and IShares is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Metals and iShares Home Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Home Construction 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 Metals are associated (or correlated) with IShares Home. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Home Construction has no effect on the direction of SPDR SP i.e., SPDR SP and IShares Home go up and down completely randomly.

Pair Corralation between SPDR SP and IShares Home

Considering the 90-day investment horizon SPDR SP Metals is expected to generate 1.08 times more return on investment than IShares Home. However, SPDR SP is 1.08 times more volatile than iShares Home Construction. It trades about 0.04 of its potential returns per unit of risk. iShares Home Construction is currently generating about -0.07 per unit of risk. If you would invest  5,676  in SPDR SP Metals on December 20, 2024 and sell it today you would earn a total of  195.00  from holding SPDR SP Metals or generate 3.44% return on investment over 90 days.

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

SPDR SP Metals  vs.  iShares Home Construction

SPDR SP Metals

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Metals are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound primary indicators, SPDR SP is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

iShares Home Construction

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Home Construction has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Etf's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Pair Trading with SPDR SP and IShares Home

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

The idea behind SPDR SP Metals and iShares Home Construction 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.