Correlation Between IShares Home and SPDR SP

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

Diversification Opportunities for IShares Home and SPDR SP

0.96

Correlation Coefficient

IShares Home  SPDR SP

Almost no diversification

The 3 months correlation between IShares and SPDR is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding iShares Home Construction and SPDR SP Homebuilders in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Homebuilders and IShares Home 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 Home Construction 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 Homebuilders has no effect on the direction of IShares Home i.e., IShares Home and SPDR SP go up and down completely randomly.

Pair Corralation between IShares Home and SPDR SP

Considering the 90-day investment horizon IShares Home is expected to generate 1.11 times less return on investment than SPDR SP. In addition to that, IShares Home is 1.12 times more volatile than SPDR SP Homebuilders. It trades about 0.16 of its total potential returns per unit of risk. SPDR SP Homebuilders is currently generating about 0.2 per unit of volatility. If you would invest  7,567  in SPDR SP Homebuilders on February 7, 2024 and sell it today you would earn a total of  3,119  from holding SPDR SP Homebuilders or generate 41.22% return on investment over 90 days.

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

iShares Home Construction  vs.  SPDR SP Homebuilders

iShares Home Construction

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Home Construction are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, IShares Home may actually be approaching a critical reversion point that can send shares even higher in June 2024.

SPDR SP Homebuilders

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Homebuilders are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical indicators, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with IShares Home and SPDR SP

The main advantage of trading using opposite IShares Home and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Home 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 Home Construction and SPDR SP Homebuilders 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.