Correlation Between SPDR SP and ARK Next

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

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

Diversification Opportunities for SPDR SP and ARK Next

0.41

Correlation Coefficient

SPDR SP  ARK Next

Very weak diversification

The 3 months correlation between SPDR and ARK is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Health and ARK Next Generation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ARK Next Generation 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 Health are associated (or correlated) with ARK Next. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ARK Next Generation has no effect on the direction of SPDR SP i.e., SPDR SP and ARK Next go up and down completely randomly.

Pair Corralation between SPDR SP and ARK Next

Considering the 90-day investment horizon SPDR SP is expected to generate 4.47 times less return on investment than ARK Next. But when comparing it to its historical volatility, SPDR SP Health is 2.19 times less risky than ARK Next. It trades about 0.18 of its potential returns per unit of risk. ARK Next Generation is currently generating about 0.37 of returns per unit of risk over similar time horizon. If you would invest  8,978  in ARK Next Generation on August 27, 2024 and sell it today you would earn a total of  1,856  from holding ARK Next Generation or generate 20.67% return on investment over 90 days.

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

SPDR SP Health  vs.  ARK Next Generation

SPDR SP Health

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Health are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical indicators, SPDR SP is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

ARK Next Generation

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ARK Next Generation are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent forward-looking signals, ARK Next showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SPDR SP and ARK Next

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

The idea behind SPDR SP Health and ARK Next Generation 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.