Correlation Between SPDR Dow and IShares NASDAQ
Can any of the company-specific risk be diversified away by investing in both SPDR Dow and IShares NASDAQ 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 Dow and IShares NASDAQ into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SPDR Dow Jones and iShares NASDAQ 100, you can compare the effects of market volatilities on SPDR Dow and IShares NASDAQ 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 Dow with a short position of IShares NASDAQ. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR Dow and IShares NASDAQ.
Diversification Opportunities for SPDR Dow and IShares NASDAQ
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between SPDR and IShares is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Dow Jones and iShares NASDAQ 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares NASDAQ 100 and SPDR Dow 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 Dow Jones are associated (or correlated) with IShares NASDAQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares NASDAQ 100 has no effect on the direction of SPDR Dow i.e., SPDR Dow and IShares NASDAQ go up and down completely randomly.
Pair Corralation between SPDR Dow and IShares NASDAQ
Assuming the 90 days trading horizon SPDR Dow Jones is expected to generate 0.86 times more return on investment than IShares NASDAQ. However, SPDR Dow Jones is 1.16 times less risky than IShares NASDAQ. It trades about 0.32 of its potential returns per unit of risk. iShares NASDAQ 100 is currently generating about 0.14 per unit of risk. If you would invest 39,161 in SPDR Dow Jones on August 30, 2024 and sell it today you would earn a total of 3,379 from holding SPDR Dow Jones or generate 8.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
SPDR Dow Jones vs. iShares NASDAQ 100
Performance |
| Timeline |
| SPDR Dow Jones |
| iShares NASDAQ 100 |
SPDR Dow and IShares NASDAQ Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SPDR Dow and IShares NASDAQ
The main advantage of trading using opposite SPDR Dow and IShares NASDAQ positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR Dow position performs unexpectedly, IShares NASDAQ 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 NASDAQ will offset losses from the drop in IShares NASDAQ's long position.The idea behind SPDR Dow Jones and iShares NASDAQ 100 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.Check out your portfolio center.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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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