Correlation Between SPDR SP and CHIH

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

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

Diversification Opportunities for SPDR SP and CHIH

0.66

Correlation Coefficient

SPDR SP  CHIH

Poor diversification

The 3 months correlation between SPDR and CHIH is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Emerging and CHIH in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHIH and SPDR SP 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 SP Emerging are associated (or correlated) with CHIH. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHIH has no effect on the direction of SPDR SP i.e., SPDR SP and CHIH go up and down completely randomly.

Pair Corralation between SPDR SP and CHIH

Considering the 90-day investment horizon SPDR SP Emerging is expected to generate 0.6 times more return on investment than CHIH. However, SPDR SP Emerging is 1.66 times less risky than CHIH. It trades about 0.05 of its potential returns per unit of risk. CHIH is currently generating about -0.08 per unit of risk. If you would invest  9,509  in SPDR SP Emerging on September 26, 2024 and sell it today you would earn a total of  2,259  from holding SPDR SP Emerging or generate 23.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	27.82%
Values	Daily Returns

SPDR SP Emerging  vs.  CHIH

SPDR SP Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR SP Emerging has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable primary indicators, SPDR SP is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

CHIH

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CHIH has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong forward indicators, CHIH is not utilizing all of its potentials. The new stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with SPDR SP and CHIH

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

The idea behind SPDR SP Emerging and CHIH 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.