Correlation Between SPDR SP and IShares Trust

Can any of the company-specific risk be diversified away by investing in both SPDR SP and IShares Trust 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 Trust 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 Trust , you can compare the effects of market volatilities on SPDR SP and IShares Trust 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 Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and IShares Trust.

Diversification Opportunities for SPDR SP and IShares Trust

0.67

Correlation Coefficient

SPDR SP  IShares Trust

Poor diversification

The 3 months correlation between SPDR and IShares is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Metals and iShares Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Trust 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 Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Trust has no effect on the direction of SPDR SP i.e., SPDR SP and IShares Trust go up and down completely randomly.

Pair Corralation between SPDR SP and IShares Trust

Considering the 90-day investment horizon SPDR SP Metals is expected to generate 1.72 times more return on investment than IShares Trust. However, SPDR SP is 1.72 times more volatile than iShares Trust . It trades about 0.05 of its potential returns per unit of risk. iShares Trust is currently generating about 0.02 per unit of risk. If you would invest  5,620  in SPDR SP Metals on December 28, 2024 and sell it today you would earn a total of  220.00  from holding SPDR SP Metals or generate 3.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

SPDR SP Metals  vs.  iShares Trust

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 Trust

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Trust are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, IShares Trust is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with SPDR SP and IShares Trust

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

The idea behind SPDR SP Metals and iShares Trust 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.