Correlation Between SPDR SP and IShares Morningstar
Can any of the company-specific risk be diversified away by investing in both SPDR SP and IShares Morningstar 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 SP and IShares Morningstar into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SPDR SP 400 and iShares Morningstar Small Cap, you can compare the effects of market volatilities on SPDR SP and IShares Morningstar 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 SP with a short position of IShares Morningstar. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and IShares Morningstar.
Diversification Opportunities for SPDR SP and IShares Morningstar
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between SPDR and IShares is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 400 and iShares Morningstar Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Morningstar and SPDR 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 SPDR SP 400 are associated (or correlated) with IShares Morningstar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Morningstar has no effect on the direction of SPDR SP i.e., SPDR SP and IShares Morningstar go up and down completely randomly.
Pair Corralation between SPDR SP and IShares Morningstar
Given the investment horizon of 90 days SPDR SP 400 is expected to generate 0.75 times more return on investment than IShares Morningstar. However, SPDR SP 400 is 1.34 times less risky than IShares Morningstar. It trades about 0.06 of its potential returns per unit of risk. iShares Morningstar Small Cap is currently generating about 0.02 per unit of risk. If you would invest 6,301 in SPDR SP 400 on September 19, 2024 and sell it today you would earn a total of 1,992 from holding SPDR SP 400 or generate 31.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 99.8% |
| Values | Daily Returns |
SPDR SP 400 vs. iShares Morningstar Small Cap
Performance |
| Timeline |
| SPDR SP 400 |
| iShares Morningstar |
SPDR SP and IShares Morningstar Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SPDR SP and IShares Morningstar
The main advantage of trading using opposite SPDR SP and IShares Morningstar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR SP position performs unexpectedly, IShares Morningstar 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 Morningstar will offset losses from the drop in IShares Morningstar's long position.The idea behind SPDR SP 400 and iShares Morningstar Small Cap 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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