Correlation Between IShares STOXX and SPDR SP

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

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

Diversification Opportunities for IShares STOXX and SPDR SP

0.9

Correlation Coefficient

IShares STOXX  SPDR SP

Almost no diversification

The 3 months correlation between IShares and SPDR is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding iShares STOXX Europe and SPDR SP Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Materials and IShares STOXX 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 STOXX Europe are associated (or correlated) with SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP Materials has no effect on the direction of IShares STOXX i.e., IShares STOXX and SPDR SP go up and down completely randomly.

Pair Corralation between IShares STOXX and SPDR SP

Assuming the 90 days trading horizon iShares STOXX Europe is expected to generate 1.14 times more return on investment than SPDR SP. However, IShares STOXX is 1.14 times more volatile than SPDR SP Materials. It trades about 0.2 of its potential returns per unit of risk. SPDR SP Materials is currently generating about 0.14 per unit of risk. If you would invest  2,353  in iShares STOXX Europe on April 22, 2025 and sell it today you would earn a total of  385.00  from holding iShares STOXX Europe or generate 16.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

iShares STOXX Europe  vs.  SPDR SP Materials

iShares STOXX Europe

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares STOXX Europe are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, IShares STOXX reported solid returns over the last few months and may actually be approaching a breakup point.

SPDR SP Materials

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Materials are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with IShares STOXX and SPDR SP

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

The idea behind iShares STOXX Europe and SPDR SP Materials 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.