Correlation Between IShares Broad and SPDR Barclays

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

Diversification Opportunities for IShares Broad and SPDR Barclays

0.95

Correlation Coefficient

IShares Broad  SPDR Barclays

Almost no diversification

The 3 months correlation between IShares and SPDR is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding iShares Broad USD 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 Broad 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 Broad USD 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 Broad i.e., IShares Broad and SPDR Barclays go up and down completely randomly.

Pair Corralation between IShares Broad and SPDR Barclays

Given the investment horizon of 90 days iShares Broad USD is expected to generate 1.4 times more return on investment than SPDR Barclays. However, IShares Broad is 1.4 times more volatile than SPDR Barclays Intermediate. It trades about 0.28 of its potential returns per unit of risk. SPDR Barclays Intermediate is currently generating about 0.28 per unit of risk. If you would invest  4,936  in iShares Broad USD on February 23, 2024 and sell it today you would earn a total of  90.00  from holding iShares Broad USD or generate 1.82% return on investment over 90 days.

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

iShares Broad USD  vs.  SPDR Barclays Intermediate

iShares Broad USD

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Broad USD are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable forward indicators, IShares Broad is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

SPDR Barclays Interm

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Barclays Intermediate are ranked lower than 5 (%) 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.

Pair Trading with IShares Broad and SPDR Barclays

The main advantage of trading using opposite IShares Broad and SPDR Barclays positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Broad 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 Broad USD 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.