Correlation Between IShares Edge and SPDR Barclays

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Can any of the company-specific risk be diversified away by investing in both IShares Edge and SPDR Barclays 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 Edge and SPDR Barclays into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between IShares Edge MSCI and SPDR Barclays Intermediate, you can compare the effects of market volatilities on IShares Edge and SPDR Barclays 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 Edge with a short position of SPDR Barclays. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Edge and SPDR Barclays.

Diversification Opportunities for IShares Edge and SPDR Barclays

0.39
  Correlation Coefficient

Weak diversification

The 3 months correlation between IShares and SPDR is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding IShares Edge MSCI and SPDR Barclays Intermediate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Barclays Interm and IShares Edge 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 Edge MSCI are associated (or correlated) with SPDR Barclays. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Barclays Interm has no effect on the direction of IShares Edge i.e., IShares Edge and SPDR Barclays go up and down completely randomly.

Pair Corralation between IShares Edge and SPDR Barclays

Given the investment horizon of 90 days IShares Edge MSCI is expected to generate 2.65 times more return on investment than SPDR Barclays. However, IShares Edge is 2.65 times more volatile than SPDR Barclays Intermediate. It trades about 0.08 of its potential returns per unit of risk. SPDR Barclays Intermediate is currently generating about 0.06 per unit of risk. If you would invest  2,576  in IShares Edge MSCI on December 29, 2023 and sell it today you would earn a total of  412.00  from holding IShares Edge MSCI or generate 15.99% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

IShares Edge MSCI  vs.  SPDR Barclays Intermediate

 Performance 
       Timeline  
IShares Edge MSCI 

Risk-Adjusted Performance

12 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in IShares Edge MSCI are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, IShares Edge may actually be approaching a critical reversion point that can send shares even higher in April 2024.
SPDR Barclays Interm 

Risk-Adjusted Performance

2 of 100

 
Low
 
High
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Barclays Intermediate are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong forward indicators, SPDR Barclays is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

IShares Edge and SPDR Barclays Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with IShares Edge and SPDR Barclays

The main advantage of trading using opposite IShares Edge and SPDR Barclays positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Edge position performs unexpectedly, SPDR Barclays 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 Barclays will offset losses from the drop in SPDR Barclays' long position.
The idea behind IShares Edge MSCI and SPDR Barclays Intermediate 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.

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