Correlation Between SPDR Dow and SBF 120

Can any of the company-specific risk be diversified away by investing in both SPDR Dow and SBF 120 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 SPDR Dow and SBF 120 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between SPDR Dow Jones and SBF 120 Gross, you can compare the effects of market volatilities on SPDR Dow and SBF 120 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 SPDR Dow with a short position of SBF 120. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR Dow and SBF 120.

Diversification Opportunities for SPDR Dow and SBF 120

0.48

Correlation Coefficient

SPDR Dow  SBF 120

Very weak diversification

The 3 months correlation between SPDR and SBF is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Dow Jones and SBF 120 Gross in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SBF 120 Gross and SPDR Dow 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 SPDR Dow Jones are associated (or correlated) with SBF 120. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SBF 120 Gross has no effect on the direction of SPDR Dow i.e., SPDR Dow and SBF 120 go up and down completely randomly.

Pair Corralation between SPDR Dow and SBF 120

Assuming the 90 days trading horizon SPDR Dow Jones is expected to under-perform the SBF 120. But the etf apears to be less risky and, when comparing its historical volatility, SPDR Dow Jones is 1.15 times less risky than SBF 120. The etf trades about -0.05 of its potential returns per unit of risk. The SBF 120 Gross is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  1,521,816  in SBF 120 Gross on December 2, 2024 and sell it today you would earn a total of  181,672  from holding SBF 120 Gross or generate 11.94% return on investment over 90 days.

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

SPDR Dow Jones  vs.  SBF 120 Gross

Pair Trading with SPDR Dow and SBF 120

The main advantage of trading using opposite SPDR Dow and SBF 120 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR Dow position performs unexpectedly, SBF 120 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 SBF 120 will offset losses from the drop in SBF 120's long position.

The idea behind SPDR Dow Jones and SBF 120 Gross 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.