Correlation Between IShares Medical and SPDR SP

Can any of the company-specific risk be diversified away by investing in both IShares Medical 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 Medical 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 Medical Devices and SPDR SP Biotech, you can compare the effects of market volatilities on IShares Medical 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 Medical with a short position of SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Medical and SPDR SP.

Diversification Opportunities for IShares Medical and SPDR SP

0.79

Correlation Coefficient

IShares Medical  SPDR SP

Poor diversification

The 3 months correlation between IShares and SPDR is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding iShares Medical Devices and SPDR SP Biotech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Biotech and IShares Medical 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 Medical Devices 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 Biotech has no effect on the direction of IShares Medical i.e., IShares Medical and SPDR SP go up and down completely randomly.

Pair Corralation between IShares Medical and SPDR SP

Considering the 90-day investment horizon iShares Medical Devices is expected to under-perform the SPDR SP. But the etf apears to be less risky and, when comparing its historical volatility, iShares Medical Devices is 1.84 times less risky than SPDR SP. The etf trades about -0.17 of its potential returns per unit of risk. The SPDR SP Biotech is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  9,104  in SPDR SP Biotech on February 3, 2024 and sell it today you would lose (270.00) from holding SPDR SP Biotech or give up 2.97% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

iShares Medical Devices  vs.  SPDR SP Biotech

iShares Medical Devices

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Medical Devices has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical indicators, IShares Medical is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

SPDR SP Biotech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR SP Biotech has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental drivers, SPDR SP is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with IShares Medical and SPDR SP

The main advantage of trading using opposite IShares Medical and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Medical 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.

The idea behind iShares Medical Devices and SPDR SP Biotech 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.