Correlation Between LS 1x and SPDR SP

Can any of the company-specific risk be diversified away by investing in both LS 1x 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 LS 1x and SPDR SP 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 SPDR SP Dividend, you can compare the effects of market volatilities on LS 1x 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 LS 1x with a short position of SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of LS 1x and SPDR SP.

Diversification Opportunities for LS 1x and SPDR SP

0.71

Correlation Coefficient

LS 1x  SPDR SP

Poor diversification

The 3 months correlation between 1AMZ and SPDR is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding LS 1x Amazon and SPDR SP Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Dividend 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 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 Dividend has no effect on the direction of LS 1x i.e., LS 1x and SPDR SP go up and down completely randomly.

Pair Corralation between LS 1x and SPDR SP

Assuming the 90 days trading horizon LS 1x Amazon is expected to generate 2.56 times more return on investment than SPDR SP. However, LS 1x is 2.56 times more volatile than SPDR SP Dividend. It trades about 0.17 of its potential returns per unit of risk. SPDR SP Dividend is currently generating about 0.15 per unit of risk. If you would invest  544.00  in LS 1x Amazon on September 5, 2024 and sell it today you would earn a total of  109.00  from holding LS 1x Amazon or generate 20.04% return on investment over 90 days.

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

LS 1x Amazon  vs.  SPDR SP Dividend

LS 1x Amazon

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in LS 1x Amazon are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, LS 1x unveiled solid returns over the last few months and may actually be approaching a breakup point.

SPDR SP Dividend

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Dividend are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with LS 1x and SPDR SP

The main advantage of trading using opposite LS 1x and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LS 1x 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 LS 1x Amazon and SPDR SP Dividend 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.