Correlation Between SPDR SP and AMS Small

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

Diversification Opportunities for SPDR SP and AMS Small

0.8

Correlation Coefficient

SPDR SP  AMS Small

Very poor diversification

The 3 months correlation between SPDR and AMS is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 500 and AMS Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AMS Small Cap 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 AMS Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AMS Small Cap has no effect on the direction of SPDR SP i.e., SPDR SP and AMS Small go up and down completely randomly.

Pair Corralation between SPDR SP and AMS Small

Assuming the 90 days trading horizon SPDR SP 500 is expected to generate 1.17 times more return on investment than AMS Small. However, SPDR SP is 1.17 times more volatile than AMS Small Cap. It trades about 0.23 of its potential returns per unit of risk. AMS Small Cap is currently generating about 0.15 per unit of risk. If you would invest  1,185  in SPDR SP 500 on April 30, 2025 and sell it today you would earn a total of  168.00  from holding SPDR SP 500 or generate 14.18% return on investment over 90 days.

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

SPDR SP 500  vs.  AMS Small Cap

Pair Trading with SPDR SP and AMS Small

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

The idea behind SPDR SP 500 and AMS Small 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.

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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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.