Correlation Between IShares Trust and SSgA SPDR

Can any of the company-specific risk be diversified away by investing in both IShares Trust and SSgA SPDR 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 Trust and SSgA SPDR into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between iShares Trust and SSgA SPDR ETFs, you can compare the effects of market volatilities on IShares Trust and SSgA SPDR 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 Trust with a short position of SSgA SPDR. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Trust and SSgA SPDR.

Diversification Opportunities for IShares Trust and SSgA SPDR

0.78

Correlation Coefficient

IShares Trust  SSgA SPDR

Poor diversification

The 3 months correlation between IShares and SSgA is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding iShares Trust and SSgA SPDR ETFs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SSgA SPDR ETFs and IShares Trust 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 Trust are associated (or correlated) with SSgA SPDR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SSgA SPDR ETFs has no effect on the direction of IShares Trust i.e., IShares Trust and SSgA SPDR go up and down completely randomly.

Pair Corralation between IShares Trust and SSgA SPDR

Given the investment horizon of 90 days IShares Trust is expected to generate 2.98 times less return on investment than SSgA SPDR. But when comparing it to its historical volatility, iShares Trust is 2.58 times less risky than SSgA SPDR. It trades about 0.15 of its potential returns per unit of risk. SSgA SPDR ETFs is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  6,127  in SSgA SPDR ETFs on September 4, 2024 and sell it today you would earn a total of  918.00  from holding SSgA SPDR ETFs or generate 14.98% return on investment over 90 days.

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

iShares Trust  vs.  SSgA SPDR ETFs

iShares Trust

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Trust are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, IShares Trust is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

SSgA SPDR ETFs

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SSgA SPDR ETFs are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent basic indicators, SSgA SPDR reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares Trust and SSgA SPDR

The main advantage of trading using opposite IShares Trust and SSgA SPDR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Trust position performs unexpectedly, SSgA SPDR 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 SSgA SPDR will offset losses from the drop in SSgA SPDR's long position.

The idea behind iShares Trust and SSgA SPDR ETFs 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .