Correlation Between IShares Semiconductor and SPDR Morgan

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

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

Diversification Opportunities for IShares Semiconductor and SPDR Morgan

0.85

Correlation Coefficient

IShares Semiconductor  SPDR Morgan

Very poor diversification

The 3 months correlation between IShares and SPDR is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding iShares Semiconductor ETF and SPDR Morgan Stanley in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Morgan Stanley and IShares Semiconductor 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 Semiconductor ETF are associated (or correlated) with SPDR Morgan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Morgan Stanley has no effect on the direction of IShares Semiconductor i.e., IShares Semiconductor and SPDR Morgan go up and down completely randomly.

Pair Corralation between IShares Semiconductor and SPDR Morgan

Given the investment horizon of 90 days iShares Semiconductor ETF is expected to under-perform the SPDR Morgan. In addition to that, IShares Semiconductor is 1.41 times more volatile than SPDR Morgan Stanley. It trades about -0.04 of its total potential returns per unit of risk. SPDR Morgan Stanley is currently generating about -0.06 per unit of volatility. If you would invest  18,161  in SPDR Morgan Stanley on February 5, 2024 and sell it today you would lose (387.00) from holding SPDR Morgan Stanley or give up 2.13% of portfolio value over 90 days.

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

iShares Semiconductor ETF  vs.  SPDR Morgan Stanley

iShares Semiconductor ETF

Risk-Adjusted Performance

5 of 100

Modest

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

SPDR Morgan Stanley

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Morgan Stanley are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, SPDR Morgan is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with IShares Semiconductor and SPDR Morgan

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

The idea behind iShares Semiconductor ETF and SPDR Morgan Stanley 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.