Correlation Between Avantis Small and SPDR SP

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

By analyzing existing cross correlation between Avantis Small Cap and SPDR SP 600, you can compare the effects of market volatilities on Avantis Small 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 Avantis Small with a short position of SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Avantis Small and SPDR SP.

Diversification Opportunities for Avantis Small and SPDR SP

0.99

Correlation Coefficient

Avantis Small  SPDR SP

No risk reduction

The 3 months correlation between Avantis and SPDR is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Avantis Small Cap and SPDR SP 600 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP 600 and Avantis Small 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 Avantis Small Cap 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 600 has no effect on the direction of Avantis Small i.e., Avantis Small and SPDR SP go up and down completely randomly.

Pair Corralation between Avantis Small and SPDR SP

Given the investment horizon of 90 days Avantis Small Cap is expected to generate 1.02 times more return on investment than SPDR SP. However, Avantis Small is 1.02 times more volatile than SPDR SP 600. It trades about -0.13 of its potential returns per unit of risk. SPDR SP 600 is currently generating about -0.14 per unit of risk. If you would invest  9,580  in Avantis Small Cap on December 28, 2024 and sell it today you would lose (868.00) from holding Avantis Small Cap or give up 9.06% of portfolio value over 90 days.

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

Avantis Small Cap  vs.  SPDR SP 600

Avantis Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Avantis Small Cap has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Etf's basic 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 SP 600

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR SP 600 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Etf's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the fund sophisticated investors.

Pair Trading with Avantis Small and SPDR SP

The main advantage of trading using opposite Avantis Small and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Avantis Small 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 Avantis Small Cap and SPDR SP 600 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.