Correlation Between LS 1x and SSgA SPDR

Can any of the company-specific risk be diversified away by investing in both LS 1x and SSgA SPDR 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 LS 1x and SSgA SPDR into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between LS 1x Amazon and SSgA SPDR MSCI, you can compare the effects of market volatilities on LS 1x and SSgA SPDR 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 LS 1x with a short position of SSgA SPDR. Check out your portfolio center. Please also check ongoing floating volatility patterns of LS 1x and SSgA SPDR.

Diversification Opportunities for LS 1x and SSgA SPDR

-0.23

Correlation Coefficient

LS 1x  SSgA SPDR

Very good diversification

The 3 months correlation between 1AMZ and SSgA is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding LS 1x Amazon and SSgA SPDR MSCI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SSgA SPDR MSCI and LS 1x 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 LS 1x Amazon are associated (or correlated) with SSgA SPDR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SSgA SPDR MSCI has no effect on the direction of LS 1x i.e., LS 1x and SSgA SPDR go up and down completely randomly.

Pair Corralation between LS 1x and SSgA SPDR

Assuming the 90 days trading horizon LS 1x Amazon is expected to under-perform the SSgA SPDR. In addition to that, LS 1x is 2.19 times more volatile than SSgA SPDR MSCI. It trades about -0.06 of its total potential returns per unit of risk. SSgA SPDR MSCI is currently generating about -0.09 per unit of volatility. If you would invest  11,539  in SSgA SPDR MSCI on December 2, 2024 and sell it today you would lose (418.00) from holding SSgA SPDR MSCI or give up 3.62% of portfolio value over 90 days.

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

LS 1x Amazon  vs.  SSgA SPDR MSCI

LS 1x Amazon

Risk-Adjusted Performance

Very Weak

Over the last 90 days LS 1x Amazon has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, LS 1x is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

SSgA SPDR MSCI

Risk-Adjusted Performance

Very Weak

Over the last 90 days SSgA SPDR MSCI has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, SSgA SPDR is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with LS 1x and SSgA SPDR

The main advantage of trading using opposite LS 1x and SSgA SPDR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LS 1x position performs unexpectedly, SSgA SPDR 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 SSgA SPDR will offset losses from the drop in SSgA SPDR's long position.

The idea behind LS 1x Amazon and SSgA SPDR MSCI 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.