Correlation Between SPDR SP and MicroSectors FANG

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

By analyzing existing cross correlation between SPDR SP 500 and MicroSectors FANG Index, you can compare the effects of market volatilities on SPDR SP and MicroSectors FANG 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 MicroSectors FANG. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and MicroSectors FANG.

Diversification Opportunities for SPDR SP and MicroSectors FANG

0.98

Correlation Coefficient

SPDR SP  MicroSectors FANG

Almost no diversification

The 3 months correlation between SPDR and MicroSectors is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 500 and MicroSectors FANG Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MicroSectors FANG 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 500 are associated (or correlated) with MicroSectors FANG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MicroSectors FANG Index has no effect on the direction of SPDR SP i.e., SPDR SP and MicroSectors FANG go up and down completely randomly.

Pair Corralation between SPDR SP and MicroSectors FANG

Considering the 90-day investment horizon SPDR SP is expected to generate 2.77 times less return on investment than MicroSectors FANG. But when comparing it to its historical volatility, SPDR SP 500 is 2.86 times less risky than MicroSectors FANG. It trades about 0.26 of its potential returns per unit of risk. MicroSectors FANG Index is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  8,216  in MicroSectors FANG Index on May 2, 2025 and sell it today you would earn a total of  3,001  from holding MicroSectors FANG Index or generate 36.53% 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 500  vs.  MicroSectors FANG Index

SPDR SP 500

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP 500 are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in August 2025.

MicroSectors FANG Index

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in MicroSectors FANG Index are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain technical and fundamental indicators, MicroSectors FANG displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SPDR SP and MicroSectors FANG

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

The idea behind SPDR SP 500 and MicroSectors FANG 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.