Correlation Between BNY Mellon and SPDR SP

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

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

Diversification Opportunities for BNY Mellon and SPDR SP

1.0

Correlation Coefficient

BNY Mellon  SPDR SP

No risk reduction

The 3 months correlation between BNY and SPDR is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding BNY Mellon Large 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 BNY Mellon 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 BNY Mellon Large 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 BNY Mellon i.e., BNY Mellon and SPDR SP go up and down completely randomly.

Pair Corralation between BNY Mellon and SPDR SP

Given the investment horizon of 90 days BNY Mellon Large is expected to generate 1.05 times more return on investment than SPDR SP. However, BNY Mellon is 1.05 times more volatile than SPDR SP 500. It trades about -0.05 of its potential returns per unit of risk. SPDR SP 500 is currently generating about -0.06 per unit of risk. If you would invest  11,436  in BNY Mellon Large on September 24, 2024 and sell it today you would lose (104.00) from holding BNY Mellon Large or give up 0.91% of portfolio value over 90 days.

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

BNY Mellon Large  vs.  SPDR SP 500

BNY Mellon Large

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BNY Mellon Large are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, BNY Mellon is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

SPDR SP 500

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP 500 are ranked lower than 5 (%) 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 recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with BNY Mellon and SPDR SP

The main advantage of trading using opposite BNY Mellon and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BNY Mellon 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 BNY Mellon Large 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.