Correlation Between SPDR Dow and IShares Utilities

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Can any of the company-specific risk be diversified away by investing in both SPDR Dow and IShares Utilities 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 Dow and IShares Utilities into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SPDR Dow Jones and iShares Utilities ETF, you can compare the effects of market volatilities on SPDR Dow and IShares Utilities 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 Dow with a short position of IShares Utilities. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR Dow and IShares Utilities.

Diversification Opportunities for SPDR Dow and IShares Utilities

0.51
  Correlation Coefficient

Very weak diversification

The 3 months correlation between SPDR and IShares is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Dow Jones and iShares Utilities ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Utilities ETF and SPDR Dow 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 Dow Jones are associated (or correlated) with IShares Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Utilities ETF has no effect on the direction of SPDR Dow i.e., SPDR Dow and IShares Utilities go up and down completely randomly.

Pair Corralation between SPDR Dow and IShares Utilities

Considering the 90-day investment horizon SPDR Dow Jones is expected to generate 1.14 times more return on investment than IShares Utilities. However, SPDR Dow is 1.14 times more volatile than iShares Utilities ETF. It trades about 0.06 of its potential returns per unit of risk. iShares Utilities ETF is currently generating about 0.07 per unit of risk. If you would invest  8,419  in SPDR Dow Jones on August 31, 2024 and sell it today you would earn a total of  2,442  from holding SPDR Dow Jones or generate 29.01% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

SPDR Dow Jones  vs.  iShares Utilities ETF

 Performance 
       Timeline  
SPDR Dow Jones 

Risk-Adjusted Performance

7 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Dow Jones are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, SPDR Dow is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.
iShares Utilities ETF 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in iShares Utilities ETF are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively sluggish fundamental indicators, IShares Utilities may actually be approaching a critical reversion point that can send shares even higher in December 2024.

SPDR Dow and IShares Utilities Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with SPDR Dow and IShares Utilities

The main advantage of trading using opposite SPDR Dow and IShares Utilities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR Dow position performs unexpectedly, IShares Utilities 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 Utilities will offset losses from the drop in IShares Utilities' long position.
The idea behind SPDR Dow Jones and iShares Utilities ETF 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.
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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 Equity Valuation module to check real value of public entities based on technical and fundamental data.

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