Correlation Between MicroSectors FANG and SSGA Active

Can any of the company-specific risk be diversified away by investing in both MicroSectors FANG and SSGA Active 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 MicroSectors FANG and SSGA Active into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between MicroSectors FANG Index and SSGA Active Trust, you can compare the effects of market volatilities on MicroSectors FANG and SSGA Active 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 MicroSectors FANG with a short position of SSGA Active. Check out your portfolio center. Please also check ongoing floating volatility patterns of MicroSectors FANG and SSGA Active.

Diversification Opportunities for MicroSectors FANG and SSGA Active

-0.63

Correlation Coefficient

MicroSectors FANG  SSGA Active

Excellent diversification

The 3 months correlation between MicroSectors and SSGA is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and SSGA Active Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SSGA Active Trust and MicroSectors FANG 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 MicroSectors FANG Index are associated (or correlated) with SSGA Active. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SSGA Active Trust has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and SSGA Active go up and down completely randomly.

Pair Corralation between MicroSectors FANG and SSGA Active

Given the investment horizon of 90 days MicroSectors FANG Index is expected to under-perform the SSGA Active. In addition to that, MicroSectors FANG is 33.27 times more volatile than SSGA Active Trust. It trades about -0.02 of its total potential returns per unit of risk. SSGA Active Trust is currently generating about 0.14 per unit of volatility. If you would invest  2,820  in SSGA Active Trust on December 1, 2024 and sell it today you would earn a total of  35.00  from holding SSGA Active Trust or generate 1.24% return on investment over 90 days.

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

MicroSectors FANG Index  vs.  SSGA Active Trust

MicroSectors FANG Index

Risk-Adjusted Performance

Very Weak

Over the last 90 days MicroSectors FANG Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Etf's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the fund shareholders.

SSGA Active Trust

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SSGA Active Trust are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental drivers, SSGA Active is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with MicroSectors FANG and SSGA Active

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

The idea behind MicroSectors FANG Index and SSGA Active Trust 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.