Correlation Between Energy Leaders and IShares SPTSX

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

Diversification Opportunities for Energy Leaders and IShares SPTSX

0.94
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Energy and IShares is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Energy Leaders Plus and iShares SPTSX Capped in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SPTSX Capped and Energy Leaders 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 Energy Leaders Plus are associated (or correlated) with IShares SPTSX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares SPTSX Capped has no effect on the direction of Energy Leaders i.e., Energy Leaders and IShares SPTSX go up and down completely randomly.

Pair Corralation between Energy Leaders and IShares SPTSX

Assuming the 90 days trading horizon Energy Leaders is expected to generate 1.38 times less return on investment than IShares SPTSX. But when comparing it to its historical volatility, Energy Leaders Plus is 1.44 times less risky than IShares SPTSX. It trades about 0.11 of its potential returns per unit of risk. iShares SPTSX Capped is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,708  in iShares SPTSX Capped on July 7, 2024 and sell it today you would earn a total of  115.00  from holding iShares SPTSX Capped or generate 6.73% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Energy Leaders Plus  vs.  iShares SPTSX Capped

 Performance 
       Timeline  
Energy Leaders Plus 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Energy Leaders Plus are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, Energy Leaders is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.
iShares SPTSX Capped 

Risk-Adjusted Performance

1 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in iShares SPTSX Capped are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, IShares SPTSX is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Energy Leaders and IShares SPTSX Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Energy Leaders and IShares SPTSX

The main advantage of trading using opposite Energy Leaders and IShares SPTSX positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy Leaders position performs unexpectedly, IShares SPTSX 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 SPTSX will offset losses from the drop in IShares SPTSX's long position.
The idea behind Energy Leaders Plus and iShares SPTSX Capped 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.

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