Correlation Between IShares Financials and SPDR Dow
Can any of the company-specific risk be diversified away by investing in both IShares Financials 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 Financials 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 Financials ETF and SPDR Dow Jones, you can compare the effects of market volatilities on IShares Financials 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 Financials with a short position of SPDR Dow. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Financials and SPDR Dow.
Diversification Opportunities for IShares Financials and SPDR Dow
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between IShares and SPDR is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding iShares Financials ETF 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 Financials 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 Financials ETF 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 Financials i.e., IShares Financials and SPDR Dow go up and down completely randomly.
Pair Corralation between IShares Financials and SPDR Dow
Considering the 90-day investment horizon iShares Financials ETF is expected to generate 0.91 times more return on investment than SPDR Dow. However, iShares Financials ETF is 1.1 times less risky than SPDR Dow. It trades about 0.09 of its potential returns per unit of risk. SPDR Dow Jones is currently generating about 0.03 per unit of risk. If you would invest 7,644 in iShares Financials ETF on November 9, 2024 and sell it today you would earn a total of 4,276 from holding iShares Financials ETF or generate 55.94% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
iShares Financials ETF vs. SPDR Dow Jones
Performance |
| Timeline |
| iShares Financials ETF |
| SPDR Dow Jones |
IShares Financials and SPDR Dow Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares Financials and SPDR Dow
The main advantage of trading using opposite IShares Financials and SPDR Dow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Financials 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.| IShares Financials vs. iShares Financial Services | IShares Financials vs. iShares Industrials ETF | IShares Financials vs. iShares Consumer Discretionary | IShares Financials vs. iShares Healthcare ETF |
| SPDR Dow vs. iShares Cohen Steers | SPDR Dow vs. iShares Real Estate | SPDR Dow vs. SPDR Dow Jones | SPDR Dow vs. iShares Utilities ETF |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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