Correlation Between SPDR SP and IShares Basic
Can any of the company-specific risk be diversified away by investing in both SPDR SP and IShares Basic 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 Basic into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SPDR SP Metals and iShares Basic Materials, you can compare the effects of market volatilities on SPDR SP and IShares Basic 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 Basic. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and IShares Basic.
Diversification Opportunities for SPDR SP and IShares Basic
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between SPDR and IShares is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Metals and iShares Basic Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Basic Materials 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 Metals are associated (or correlated) with IShares Basic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Basic Materials has no effect on the direction of SPDR SP i.e., SPDR SP and IShares Basic go up and down completely randomly.
Pair Corralation between SPDR SP and IShares Basic
Considering the 90-day investment horizon SPDR SP Metals is expected to generate 1.57 times more return on investment than IShares Basic. However, SPDR SP is 1.57 times more volatile than iShares Basic Materials. It trades about 0.05 of its potential returns per unit of risk. iShares Basic Materials is currently generating about 0.04 per unit of risk. If you would invest 5,069 in SPDR SP Metals on September 2, 2024 and sell it today you would earn a total of 1,806 from holding SPDR SP Metals or generate 35.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
SPDR SP Metals vs. iShares Basic Materials
Performance |
| Timeline |
| SPDR SP Metals |
| iShares Basic Materials |
SPDR SP and IShares Basic Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SPDR SP and IShares Basic
The main advantage of trading using opposite SPDR SP and IShares Basic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR SP position performs unexpectedly, IShares Basic 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 Basic will offset losses from the drop in IShares Basic's long position.| SPDR SP vs. Materials Select Sector | SPDR SP vs. SPDR SP Oil | SPDR SP vs. SPDR SP Retail | SPDR SP vs. SPDR SP Homebuilders |
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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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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