Correlation Between IShares NASDAQ and IShares SPTSX

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

By analyzing existing cross correlation between iShares NASDAQ 100 and iShares SPTSX Capped, you can compare the effects of market volatilities on IShares NASDAQ and IShares SPTSX 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 NASDAQ with a short position of IShares SPTSX. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares NASDAQ and IShares SPTSX.

Diversification Opportunities for IShares NASDAQ and IShares SPTSX

0.87

Correlation Coefficient

IShares NASDAQ  IShares SPTSX

Very poor diversification

The 3 months correlation between IShares and IShares is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding iShares NASDAQ 100 and iShares SPTSX Capped in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SPTSX Capped and IShares NASDAQ 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 NASDAQ 100 are associated (or correlated) with IShares SPTSX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares SPTSX Capped has no effect on the direction of IShares NASDAQ i.e., IShares NASDAQ and IShares SPTSX go up and down completely randomly.

Pair Corralation between IShares NASDAQ and IShares SPTSX

Assuming the 90 days trading horizon iShares NASDAQ 100 is expected to under-perform the IShares SPTSX. But the etf apears to be less risky and, when comparing its historical volatility, iShares NASDAQ 100 is 1.37 times less risky than IShares SPTSX. The etf trades about -0.1 of its potential returns per unit of risk. The iShares SPTSX Capped is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  6,846  in iShares SPTSX Capped on December 30, 2024 and sell it today you would lose (567.00) from holding iShares SPTSX Capped or give up 8.28% of portfolio value over 90 days.

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

iShares NASDAQ 100  vs.  iShares SPTSX Capped

iShares NASDAQ 100

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares NASDAQ 100 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

iShares SPTSX Capped

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares SPTSX Capped has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Etf's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

Pair Trading with IShares NASDAQ and IShares SPTSX

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

The idea behind iShares NASDAQ 100 and iShares SPTSX Capped 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.