Correlation Between SPDR SP and Optimize Strategy

Can any of the company-specific risk be diversified away by investing in both SPDR SP and Optimize Strategy 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 Optimize Strategy 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 Optimize Strategy Index, you can compare the effects of market volatilities on SPDR SP and Optimize Strategy 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 Optimize Strategy. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and Optimize Strategy.

Diversification Opportunities for SPDR SP and Optimize Strategy

0.99

Correlation Coefficient

SPDR SP  Optimize Strategy

No risk reduction

The 3 months correlation between SPDR and Optimize is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP MIDCAP and Optimize Strategy Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Optimize Strategy Index 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 Optimize Strategy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Optimize Strategy Index has no effect on the direction of SPDR SP i.e., SPDR SP and Optimize Strategy go up and down completely randomly.

Pair Corralation between SPDR SP and Optimize Strategy

Considering the 90-day investment horizon SPDR SP MIDCAP is expected to under-perform the Optimize Strategy. But the etf apears to be less risky and, when comparing its historical volatility, SPDR SP MIDCAP is 1.1 times less risky than Optimize Strategy. The etf trades about -0.09 of its potential returns per unit of risk. The Optimize Strategy Index is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  3,042  in Optimize Strategy Index on January 28, 2025 and sell it today you would lose (361.00) from holding Optimize Strategy Index or give up 11.87% of portfolio value over 90 days.

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

SPDR SP MIDCAP  vs.  Optimize Strategy Index

SPDR SP MIDCAP

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR SP MIDCAP has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Optimize Strategy Index

Risk-Adjusted Performance

Very Weak

Over the last 90 days Optimize Strategy Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Pair Trading with SPDR SP and Optimize Strategy

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

The idea behind SPDR SP MIDCAP and Optimize Strategy Index 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.