Correlation Between SPACE and SPDR SP

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

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

Diversification Opportunities for SPACE and SPDR SP

0.2

Correlation Coefficient

SPACE  SPDR SP

Modest diversification

The 3 months correlation between SPACE and SPDR is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding SPACE and SPDR SP Biotech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Biotech and SPACE 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 SPACE are associated (or correlated) with SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP Biotech has no effect on the direction of SPACE i.e., SPACE and SPDR SP go up and down completely randomly.

Pair Corralation between SPACE and SPDR SP

Assuming the 90 days horizon SPACE is expected to under-perform the SPDR SP. In addition to that, SPACE is 3.27 times more volatile than SPDR SP Biotech. It trades about -0.19 of its total potential returns per unit of risk. SPDR SP Biotech is currently generating about 0.02 per unit of volatility. If you would invest  8,949  in SPDR SP Biotech on February 4, 2024 and sell it today you would earn a total of  49.00  from holding SPDR SP Biotech or generate 0.55% return on investment over 90 days.

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

SPACE  vs.  SPDR SP Biotech

SPACE

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPACE are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, SPACE exhibited solid returns over the last few months and may actually be approaching a breakup point.

SPDR SP Biotech

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Biotech are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong fundamental drivers, SPDR SP is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with SPACE and SPDR SP

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

The idea behind SPACE and SPDR SP Biotech 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.