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 World and SPDR Portfolio SP, 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

-0.62

Correlation Coefficient

SPDR SP  SPDR Portfolio

Excellent diversification

The 3 months correlation between SPDR and SPDR is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP World and SPDR Portfolio SP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Portfolio SP 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 World 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 SP 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

Given the investment horizon of 90 days SPDR SP is expected to generate 2.76 times less return on investment than SPDR Portfolio. But when comparing it to its historical volatility, SPDR SP World is 1.18 times less risky than SPDR Portfolio. It trades about 0.05 of its potential returns per unit of risk. SPDR Portfolio SP is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  4,981  in SPDR Portfolio SP on September 20, 2024 and sell it today you would earn a total of  3,821  from holding SPDR Portfolio SP or generate 76.71% return on investment over 90 days.

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

SPDR SP World  vs.  SPDR Portfolio SP

SPDR SP World

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR SP World has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Etf's fundamental indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the fund sophisticated investors.

SPDR Portfolio SP

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Portfolio SP are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, SPDR Portfolio may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 World and SPDR Portfolio SP 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.