Correlation Between SPDR SP and IShares Technology

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

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

Diversification Opportunities for SPDR SP and IShares Technology

0.86

Correlation Coefficient

SPDR SP  IShares Technology

Very poor diversification

The 3 months correlation between SPDR and IShares is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Retail and iShares Technology ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Technology ETF 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 Retail are associated (or correlated) with IShares Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Technology ETF has no effect on the direction of SPDR SP i.e., SPDR SP and IShares Technology go up and down completely randomly.

Pair Corralation between SPDR SP and IShares Technology

Considering the 90-day investment horizon SPDR SP is expected to generate 1.5 times less return on investment than IShares Technology. In addition to that, SPDR SP is 1.04 times more volatile than iShares Technology ETF. It trades about 0.04 of its total potential returns per unit of risk. iShares Technology ETF is currently generating about 0.06 per unit of volatility. If you would invest  15,789  in iShares Technology ETF on October 7, 2024 and sell it today you would earn a total of  448.00  from holding iShares Technology ETF or generate 2.84% return on investment over 90 days.

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

SPDR SP Retail  vs.  iShares Technology ETF

SPDR SP Retail

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Retail are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in February 2025.

iShares Technology ETF

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Technology ETF are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, IShares Technology may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with SPDR SP and IShares Technology

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

The idea behind SPDR SP Retail and iShares Technology ETF 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.