Correlation Between SPDR SP and IShares ESG

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

By analyzing existing cross correlation between SPDR SP 500 and iShares ESG Advanced, you can compare the effects of market volatilities on SPDR SP and IShares ESG 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 SPDR SP with a short position of IShares ESG. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and IShares ESG.

Diversification Opportunities for SPDR SP and IShares ESG

1.0

Correlation Coefficient

SPDR SP  IShares ESG

No risk reduction

The 3 months correlation between SPDR and IShares is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 500 and iShares ESG Advanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares ESG Advanced and SPDR SP 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 SPDR SP 500 are associated (or correlated) with IShares ESG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares ESG Advanced has no effect on the direction of SPDR SP i.e., SPDR SP and IShares ESG go up and down completely randomly.

Pair Corralation between SPDR SP and IShares ESG

Given the investment horizon of 90 days SPDR SP is expected to generate 1.31 times less return on investment than IShares ESG. But when comparing it to its historical volatility, SPDR SP 500 is 1.15 times less risky than IShares ESG. It trades about 0.22 of its potential returns per unit of risk. iShares ESG Advanced is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  4,773  in iShares ESG Advanced on May 5, 2025 and sell it today you would earn a total of  687.00  from holding iShares ESG Advanced or generate 14.39% return on investment over 90 days.

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

SPDR SP 500  vs.  iShares ESG Advanced

SPDR SP 500

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP 500 are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in September 2025.

iShares ESG Advanced

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares ESG Advanced are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, IShares ESG reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SPDR SP and IShares ESG

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

The idea behind SPDR SP 500 and iShares ESG Advanced 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.