Correlation Between IShares Aerospace and SPDR SP

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

Diversification Opportunities for IShares Aerospace and SPDR SP

0.58

Correlation Coefficient

IShares Aerospace  SPDR SP

Very weak diversification

The 3 months correlation between IShares and SPDR is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding iShares Aerospace Defense and SPDR SP Aerospace in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Aerospace and IShares Aerospace 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 Aerospace Defense 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 Aerospace has no effect on the direction of IShares Aerospace i.e., IShares Aerospace and SPDR SP go up and down completely randomly.

Pair Corralation between IShares Aerospace and SPDR SP

Considering the 90-day investment horizon iShares Aerospace Defense is expected to under-perform the SPDR SP. But the etf apears to be less risky and, when comparing its historical volatility, iShares Aerospace Defense is 1.13 times less risky than SPDR SP. The etf trades about -0.02 of its potential returns per unit of risk. The SPDR SP Aerospace is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  15,679  in SPDR SP Aerospace on September 22, 2024 and sell it today you would earn a total of  956.00  from holding SPDR SP Aerospace or generate 6.1% return on investment over 90 days.

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

iShares Aerospace Defense  vs.  SPDR SP Aerospace

iShares Aerospace Defense

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Aerospace Defense has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, IShares Aerospace is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

SPDR SP Aerospace

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Aerospace are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares Aerospace and SPDR SP

The main advantage of trading using opposite IShares Aerospace and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Aerospace 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 Aerospace Defense and SPDR SP Aerospace 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.