Correlation Between Vanguard Total and SPDR SP

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Can any of the company-specific risk be diversified away by investing in both Vanguard Total 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 Vanguard Total and SPDR SP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Total Stock and SPDR SP 500, you can compare the effects of market volatilities on Vanguard Total 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 Vanguard Total with a short position of SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Total and SPDR SP.

Diversification Opportunities for Vanguard Total and SPDR SP

1.0
  Correlation Coefficient

No risk reduction

The 3 months correlation between Vanguard and SPDR is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Total Stock and SPDR SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP 500 and Vanguard Total 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 Vanguard Total Stock 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 500 has no effect on the direction of Vanguard Total i.e., Vanguard Total and SPDR SP go up and down completely randomly.

Pair Corralation between Vanguard Total and SPDR SP

Considering the 90-day investment horizon Vanguard Total is expected to generate 1.02 times less return on investment than SPDR SP. In addition to that, Vanguard Total is 1.02 times more volatile than SPDR SP 500. It trades about 0.26 of its total potential returns per unit of risk. SPDR SP 500 is currently generating about 0.27 per unit of volatility. If you would invest  50,536  in SPDR SP 500 on December 29, 2023 and sell it today you would earn a total of  1,781  from holding SPDR SP 500 or generate 3.52% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Vanguard Total Stock  vs.  SPDR SP 500

 Performance 
       Timeline  
Vanguard Total Stock 

Risk-Adjusted Performance

17 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Total Stock are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Vanguard Total may actually be approaching a critical reversion point that can send shares even higher in April 2024.
SPDR SP 500 

Risk-Adjusted Performance

18 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP 500 are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in April 2024.

Vanguard Total and SPDR SP Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Vanguard Total and SPDR SP

The main advantage of trading using opposite Vanguard Total and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Total 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 Vanguard Total Stock and SPDR SP 500 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.

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