Correlation Between IShares SPTSX and Energy Income

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

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

Diversification Opportunities for IShares SPTSX and Energy Income

-0.64

Correlation Coefficient

IShares SPTSX  Energy Income

Excellent diversification

The 3 months correlation between IShares and Energy is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding iShares SPTSX Capped and Energy Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Income 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 Capped are associated (or correlated) with Energy Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Income has no effect on the direction of IShares SPTSX i.e., IShares SPTSX and Energy Income go up and down completely randomly.

Pair Corralation between IShares SPTSX and Energy Income

Assuming the 90 days trading horizon iShares SPTSX Capped is expected to generate 0.39 times more return on investment than Energy Income. However, iShares SPTSX Capped is 2.57 times less risky than Energy Income. It trades about -0.12 of its potential returns per unit of risk. Energy Income is currently generating about -0.14 per unit of risk. If you would invest  1,587  in iShares SPTSX Capped on September 13, 2024 and sell it today you would lose (33.00) from holding iShares SPTSX Capped or give up 2.08% of portfolio value over 90 days.

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

iShares SPTSX Capped  vs.  Energy Income

iShares SPTSX Capped

Risk-Adjusted Performance

0 of 100

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 unfluctuating performance in the last few months, the Etf's technical and fundamental indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the ETF investors.

Energy Income

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Income are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong forward indicators, Energy Income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares SPTSX and Energy Income

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

The idea behind iShares SPTSX Capped and Energy Income 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.