Correlation Between Virtus LifeSci and SPDR SP

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

Diversification Opportunities for Virtus LifeSci and SPDR SP

0.34
  Correlation Coefficient

Weak diversification

The 3 months correlation between Virtus and SPDR is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Virtus LifeSci Biotech and SPDR SP Biotech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Biotech and Virtus LifeSci 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 Virtus LifeSci Biotech 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 Biotech has no effect on the direction of Virtus LifeSci i.e., Virtus LifeSci and SPDR SP go up and down completely randomly.

Pair Corralation between Virtus LifeSci and SPDR SP

Considering the 90-day investment horizon Virtus LifeSci Biotech is expected to under-perform the SPDR SP. But the etf apears to be less risky and, when comparing its historical volatility, Virtus LifeSci Biotech is 1.28 times less risky than SPDR SP. The etf trades about -0.3 of its potential returns per unit of risk. The SPDR SP Biotech is currently generating about -0.19 of returns per unit of risk over similar time horizon. If you would invest  10,153  in SPDR SP Biotech on December 30, 2023 and sell it today you would lose (664.00) from holding SPDR SP Biotech or give up 6.54% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Virtus LifeSci Biotech  vs.  SPDR SP Biotech

 Performance 
       Timeline  
Virtus LifeSci Biotech 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days Virtus LifeSci Biotech has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental drivers, Virtus LifeSci is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.
SPDR SP Biotech 

Risk-Adjusted Performance

4 of 100

 
Low
 
High
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Biotech are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly abnormal fundamental drivers, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in April 2024.

Virtus LifeSci and SPDR SP Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Virtus LifeSci and SPDR SP

The main advantage of trading using opposite Virtus LifeSci and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Virtus LifeSci 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 Virtus LifeSci Biotech and SPDR SP Biotech 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.

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