Correlation Between SPDR Dow and UBS Institutional

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

Diversification Opportunities for SPDR Dow and UBS Institutional

-0.25

Correlation Coefficient

SPDR Dow  UBS Institutional

Very good diversification

The 3 months correlation between SPDR and UBS is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Dow Jones and UBS Institutional in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UBS Institutional 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 UBS Institutional. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UBS Institutional has no effect on the direction of SPDR Dow i.e., SPDR Dow and UBS Institutional go up and down completely randomly.

Pair Corralation between SPDR Dow and UBS Institutional

Assuming the 90 days trading horizon SPDR Dow is expected to generate 1.47 times less return on investment than UBS Institutional. In addition to that, SPDR Dow is 1.06 times more volatile than UBS Institutional. It trades about 0.01 of its total potential returns per unit of risk. UBS Institutional is currently generating about 0.02 per unit of volatility. If you would invest  116,999  in UBS Institutional on October 9, 2024 and sell it today you would earn a total of  9,829  from holding UBS Institutional or generate 8.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

SPDR Dow Jones  vs.  UBS Institutional

SPDR Dow Jones

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR Dow Jones has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, SPDR Dow is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

UBS Institutional

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days UBS Institutional has generated negative risk-adjusted returns adding no value to fund investors. Despite somewhat strong basic indicators, UBS Institutional is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with SPDR Dow and UBS Institutional

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

The idea behind SPDR Dow Jones and UBS Institutional 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.