Correlation Between IShares Morningstar and SPDR SP
Can any of the company-specific risk be diversified away by investing in both IShares Morningstar and SPDR SP 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 Morningstar and SPDR SP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares Morningstar Mid Cap and SPDR SP 400, you can compare the effects of market volatilities on IShares Morningstar and SPDR SP 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 Morningstar with a short position of SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Morningstar and SPDR SP.
Diversification Opportunities for IShares Morningstar and SPDR SP
0.98 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between IShares and SPDR is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding iShares Morningstar Mid Cap and SPDR SP 400 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP 400 and IShares Morningstar 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 Morningstar Mid Cap are associated (or correlated) with SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP 400 has no effect on the direction of IShares Morningstar i.e., IShares Morningstar and SPDR SP go up and down completely randomly.
Pair Corralation between IShares Morningstar and SPDR SP
Given the investment horizon of 90 days IShares Morningstar is expected to generate 1.23 times less return on investment than SPDR SP. But when comparing it to its historical volatility, iShares Morningstar Mid Cap is 1.4 times less risky than SPDR SP. It trades about 0.14 of its potential returns per unit of risk. SPDR SP 400 is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 7,413 in SPDR SP 400 on August 29, 2024 and sell it today you would earn a total of 1,238 from holding SPDR SP 400 or generate 16.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
iShares Morningstar Mid Cap vs. SPDR SP 400
Performance |
| Timeline |
| iShares Morningstar Mid |
| SPDR SP 400 |
IShares Morningstar and SPDR SP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares Morningstar and SPDR SP
The main advantage of trading using opposite IShares Morningstar and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Morningstar position performs unexpectedly, SPDR SP 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 SPDR SP will offset losses from the drop in SPDR SP's long position.The idea behind iShares Morningstar Mid Cap and SPDR SP 400 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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