Correlation Between SPDR Portfolio and SPDR SP

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

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

Diversification Opportunities for SPDR Portfolio and SPDR SP

0.83

Correlation Coefficient

SPDR Portfolio  SPDR SP

Very poor diversification

The 3 months correlation between SPDR and SPDR is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Portfolio Emerging and SPDR SP Emerging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Emerging and SPDR Portfolio 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 SPDR Portfolio Emerging 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 Emerging has no effect on the direction of SPDR Portfolio i.e., SPDR Portfolio and SPDR SP go up and down completely randomly.

Pair Corralation between SPDR Portfolio and SPDR SP

Given the investment horizon of 90 days SPDR Portfolio is expected to generate 1.23 times less return on investment than SPDR SP. In addition to that, SPDR Portfolio is 1.17 times more volatile than SPDR SP Emerging. It trades about 0.03 of its total potential returns per unit of risk. SPDR SP Emerging is currently generating about 0.05 per unit of volatility. If you would invest  4,797  in SPDR SP Emerging on February 4, 2024 and sell it today you would earn a total of  1,021  from holding SPDR SP Emerging or generate 21.28% return on investment over 90 days.

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

SPDR Portfolio Emerging  vs.  SPDR SP Emerging

SPDR Portfolio Emerging

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Portfolio Emerging are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very weak technical and fundamental indicators, SPDR Portfolio may actually be approaching a critical reversion point that can send shares even higher in June 2024.

SPDR SP Emerging

Risk-Adjusted Performance

13 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Emerging are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with SPDR Portfolio and SPDR SP

The main advantage of trading using opposite SPDR Portfolio and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR Portfolio 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 SPDR Portfolio Emerging and SPDR SP Emerging 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.