Correlation Between SPDR Dow and Vanguard STAR

Can any of the company-specific risk be diversified away by investing in both SPDR Dow and Vanguard STAR 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 Vanguard STAR 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 Vanguard STAR Funds, you can compare the effects of market volatilities on SPDR Dow and Vanguard STAR 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 Vanguard STAR. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR Dow and Vanguard STAR.

Diversification Opportunities for SPDR Dow and Vanguard STAR

0.18

Correlation Coefficient

SPDR Dow  Vanguard STAR

Average diversification

The 3 months correlation between SPDR and Vanguard is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Dow Jones and Vanguard STAR Funds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard STAR Funds 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 Vanguard STAR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard STAR Funds has no effect on the direction of SPDR Dow i.e., SPDR Dow and Vanguard STAR go up and down completely randomly.

Pair Corralation between SPDR Dow and Vanguard STAR

Assuming the 90 days trading horizon SPDR Dow Jones is expected to under-perform the Vanguard STAR. But the etf apears to be less risky and, when comparing its historical volatility, SPDR Dow Jones is 2.18 times less risky than Vanguard STAR. The etf trades about -0.22 of its potential returns per unit of risk. The Vanguard STAR Funds is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  123,590  in Vanguard STAR Funds on October 5, 2024 and sell it today you would lose (3,399) from holding Vanguard STAR Funds or give up 2.75% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	94.74%
Values	Daily Returns

SPDR Dow Jones  vs.  Vanguard STAR Funds

SPDR Dow Jones

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Dow Jones are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, SPDR Dow may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Vanguard STAR Funds

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard STAR Funds has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Vanguard STAR is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with SPDR Dow and Vanguard STAR

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

The idea behind SPDR Dow Jones and Vanguard STAR Funds 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.