Correlation Between IShares Financials and SPDR SP
Can any of the company-specific risk be diversified away by investing in both IShares Financials 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 Financials 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 Financials ETF and SPDR SP Insurance, you can compare the effects of market volatilities on IShares Financials 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 Financials with a short position of SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Financials and SPDR SP.
Diversification Opportunities for IShares Financials and SPDR SP
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between IShares and SPDR is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding iShares Financials ETF and SPDR SP Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Insurance and IShares Financials 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 Financials ETF 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 Insurance has no effect on the direction of IShares Financials i.e., IShares Financials and SPDR SP go up and down completely randomly.
Pair Corralation between IShares Financials and SPDR SP
Considering the 90-day investment horizon iShares Financials ETF is expected to generate 0.82 times more return on investment than SPDR SP. However, iShares Financials ETF is 1.22 times less risky than SPDR SP. It trades about -0.2 of its potential returns per unit of risk. SPDR SP Insurance is currently generating about -0.17 per unit of risk. If you would invest 9,481 in iShares Financials ETF on January 21, 2024 and sell it today you would lose (351.00) from holding iShares Financials ETF or give up 3.7% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
iShares Financials ETF vs. SPDR SP Insurance
Performance |
| Timeline |
| iShares Financials ETF |
| SPDR SP Insurance |
IShares Financials and SPDR SP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares Financials and SPDR SP
The main advantage of trading using opposite IShares Financials and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Financials 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.| IShares Financials vs. Energy Select Sector | IShares Financials vs. Technology Select Sector | IShares Financials vs. Health Care Select | IShares Financials vs. Industrial Select Sector |
| SPDR SP vs. SPDR SP Capital | SPDR SP vs. iShares Insurance ETF | SPDR SP vs. SPDR SP Bank | SPDR SP vs. iShares Broker Dealers Securities |
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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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