Correlation Between SPDR FTSE and Principal Spectrum

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

By analyzing existing cross correlation between SPDR FTSE International and Principal Spectrum Preferred, you can compare the effects of market volatilities on SPDR FTSE and Principal Spectrum 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 FTSE with a short position of Principal Spectrum. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR FTSE and Principal Spectrum.

Diversification Opportunities for SPDR FTSE and Principal Spectrum

0.77

Correlation Coefficient

SPDR FTSE  Principal Spectrum

Poor diversification

The 3 months correlation between SPDR and Principal is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding SPDR FTSE International and Principal Spectrum Preferred in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal Spectrum and SPDR FTSE 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 FTSE International are associated (or correlated) with Principal Spectrum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Principal Spectrum has no effect on the direction of SPDR FTSE i.e., SPDR FTSE and Principal Spectrum go up and down completely randomly.

Pair Corralation between SPDR FTSE and Principal Spectrum

Considering the 90-day investment horizon SPDR FTSE is expected to generate 1.38 times less return on investment than Principal Spectrum. In addition to that, SPDR FTSE is 4.29 times more volatile than Principal Spectrum Preferred. It trades about 0.06 of its total potential returns per unit of risk. Principal Spectrum Preferred is currently generating about 0.33 per unit of volatility. If you would invest  1,832  in Principal Spectrum Preferred on May 7, 2025 and sell it today you would earn a total of  54.00  from holding Principal Spectrum Preferred or generate 2.95% return on investment over 90 days.

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

SPDR FTSE International  vs.  Principal Spectrum Preferred

SPDR FTSE International

Risk-Adjusted Performance

Soft

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR FTSE International are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable forward indicators, SPDR FTSE is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Principal Spectrum

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Principal Spectrum Preferred are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Principal Spectrum is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with SPDR FTSE and Principal Spectrum

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

The idea behind SPDR FTSE International and Principal Spectrum Preferred 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.