Correlation Between SPDR SP and SPDR Portfolio

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

Diversification Opportunities for SPDR SP and SPDR Portfolio

0.95

Correlation Coefficient

SPDR SP  SPDR Portfolio

Almost no diversification

The 3 months correlation between SPDR and SPDR is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 500 and SPDR Portfolio MSCI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Portfolio MSCI 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 SPDR Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Portfolio MSCI has no effect on the direction of SPDR SP i.e., SPDR SP and SPDR Portfolio go up and down completely randomly.

Pair Corralation between SPDR SP and SPDR Portfolio

Considering the 90-day investment horizon SPDR SP 500 is expected to generate 1.24 times more return on investment than SPDR Portfolio. However, SPDR SP is 1.24 times more volatile than SPDR Portfolio MSCI. It trades about 0.13 of its potential returns per unit of risk. SPDR Portfolio MSCI is currently generating about 0.0 per unit of risk. If you would invest  57,978  in SPDR SP 500 on August 16, 2024 and sell it today you would earn a total of  1,357  from holding SPDR SP 500 or generate 2.34% 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.  SPDR Portfolio MSCI

SPDR SP 500

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP 500 are ranked lower than 11 (%) 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 December 2024.

SPDR Portfolio MSCI

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Portfolio MSCI are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, SPDR Portfolio is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with SPDR SP and SPDR Portfolio

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

The idea behind SPDR SP 500 and SPDR Portfolio MSCI 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.