Correlation Between Alerian MLP and SPDR SP

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

By analyzing existing cross correlation between Alerian MLP ETF and SPDR SP 500, you can compare the effects of market volatilities on Alerian MLP 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 Alerian MLP with a short position of SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alerian MLP and SPDR SP.

Diversification Opportunities for Alerian MLP and SPDR SP

0.81

Correlation Coefficient

Alerian MLP  SPDR SP

Very poor diversification

The 3 months correlation between Alerian and SPDR is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Alerian MLP ETF and SPDR SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP 500 and Alerian MLP 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 Alerian MLP ETF 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 500 has no effect on the direction of Alerian MLP i.e., Alerian MLP and SPDR SP go up and down completely randomly.

Pair Corralation between Alerian MLP and SPDR SP

Given the investment horizon of 90 days Alerian MLP ETF is expected to generate 0.95 times more return on investment than SPDR SP. However, Alerian MLP ETF is 1.05 times less risky than SPDR SP. It trades about -0.05 of its potential returns per unit of risk. SPDR SP 500 is currently generating about -0.11 per unit of risk. If you would invest  4,915  in Alerian MLP ETF on October 10, 2024 and sell it today you would lose (50.00) from holding Alerian MLP ETF or give up 1.02% of portfolio value over 90 days.

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

Alerian MLP ETF  vs.  SPDR SP 500

Alerian MLP ETF

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Alerian MLP ETF are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable essential indicators, Alerian MLP is not utilizing all of its potentials. The new stock price agitation, may contribute to short-term losses for the retail investors.

SPDR SP 500

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP 500 are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, SPDR SP is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Alerian MLP and SPDR SP

The main advantage of trading using opposite Alerian MLP and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alerian MLP 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 Alerian MLP ETF and SPDR SP 500 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.