Correlation Between IShares Financial and SPDR SP
Can any of the company-specific risk be diversified away by investing in both IShares Financial 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 Financial 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 Financial Services and SPDR SP Capital, you can compare the effects of market volatilities on IShares Financial 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 Financial with a short position of SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Financial and SPDR SP.
Diversification Opportunities for IShares Financial and SPDR SP
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between IShares and SPDR is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding iShares Financial Services and SPDR SP Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Capital and IShares Financial 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 Financial Services 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 Capital has no effect on the direction of IShares Financial i.e., IShares Financial and SPDR SP go up and down completely randomly.
Pair Corralation between IShares Financial and SPDR SP
Considering the 90-day investment horizon IShares Financial is expected to generate 1.24 times less return on investment than SPDR SP. But when comparing it to its historical volatility, iShares Financial Services is 1.16 times less risky than SPDR SP. It trades about 0.17 of its potential returns per unit of risk. SPDR SP Capital is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest 9,164 in SPDR SP Capital on August 29, 2024 and sell it today you would earn a total of 5,661 from holding SPDR SP Capital or generate 61.77% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
iShares Financial Services vs. SPDR SP Capital
Performance |
| Timeline |
| iShares Financial |
| SPDR SP Capital |
IShares Financial and SPDR SP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares Financial and SPDR SP
The main advantage of trading using opposite IShares Financial and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Financial 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.| IShares Financial vs. iShares Financials ETF | IShares Financial vs. iShares Consumer Discretionary | IShares Financial vs. iShares Industrials ETF | IShares Financial vs. iShares Consumer Staples |
| SPDR SP vs. SPDR SP Insurance | SPDR SP vs. iShares Broker Dealers Securities | SPDR SP vs. SPDR SP Bank | SPDR SP vs. iShares Financial Services |
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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.
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