Correlation Between SPDR SP and Vanguard

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

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

Diversification Opportunities for SPDR SP and Vanguard

1.0

Correlation Coefficient

SPDR SP  Vanguard

No risk reduction

The 3 months correlation between SPDR and Vanguard is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP MIDCAP and Vanguard SP Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard SP Mid and SPDR SP 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 SP MIDCAP are associated (or correlated) with Vanguard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard SP Mid has no effect on the direction of SPDR SP i.e., SPDR SP and Vanguard go up and down completely randomly.

Pair Corralation between SPDR SP and Vanguard

Considering the 90-day investment horizon SPDR SP is expected to generate 1.03 times less return on investment than Vanguard. But when comparing it to its historical volatility, SPDR SP MIDCAP is 1.01 times less risky than Vanguard. It trades about 0.08 of its potential returns per unit of risk. Vanguard SP Mid Cap is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  10,452  in Vanguard SP Mid Cap on August 23, 2024 and sell it today you would earn a total of  510.00  from holding Vanguard SP Mid Cap or generate 4.88% return on investment over 90 days.

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

SPDR SP MIDCAP  vs.  Vanguard SP Mid Cap

SPDR SP MIDCAP

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP MIDCAP are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, SPDR SP is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Vanguard SP Mid

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard SP Mid Cap are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Vanguard is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with SPDR SP and Vanguard

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

The idea behind SPDR SP MIDCAP and Vanguard SP Mid Cap 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.

Check out your portfolio center.

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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .