Correlation Between IShares SP and SPDR Dow
Can any of the company-specific risk be diversified away by investing in both IShares SP and SPDR Dow 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 SP and SPDR Dow into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares SP 500 and SPDR Dow Jones, you can compare the effects of market volatilities on IShares SP and SPDR Dow 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 SP with a short position of SPDR Dow. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares SP and SPDR Dow.
Diversification Opportunities for IShares SP and SPDR Dow
-0.85 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between IShares and SPDR is -0.85. Overlapping area represents the amount of risk that can be diversified away by holding iShares SP 500 and SPDR Dow Jones in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Dow Jones and IShares 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 iShares SP 500 are associated (or correlated) with SPDR Dow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Dow Jones has no effect on the direction of IShares SP i.e., IShares SP and SPDR Dow go up and down completely randomly.
Pair Corralation between IShares SP and SPDR Dow
Assuming the 90 days trading horizon IShares SP is expected to generate 4.11 times less return on investment than SPDR Dow. But when comparing it to its historical volatility, iShares SP 500 is 1.04 times less risky than SPDR Dow. It trades about 0.02 of its potential returns per unit of risk. SPDR Dow Jones is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 32,096 in SPDR Dow Jones on August 31, 2024 and sell it today you would earn a total of 10,444 from holding SPDR Dow Jones or generate 32.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 99.79% |
| Values | Daily Returns |
iShares SP 500 vs. SPDR Dow Jones
Performance |
| Timeline |
| iShares SP 500 |
| SPDR Dow Jones |
IShares SP and SPDR Dow Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares SP and SPDR Dow
The main advantage of trading using opposite IShares SP and SPDR Dow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares SP position performs unexpectedly, SPDR Dow 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 Dow will offset losses from the drop in SPDR Dow's long position.The idea behind iShares SP 500 and SPDR Dow Jones 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.| SPDR Dow vs. SPDR MSCI World | SPDR Dow vs. SPDR SP Dividend | SPDR Dow vs. SPDR SP 500 | SPDR Dow vs. SPDR BB SB |
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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.
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