Correlation Between SPDR SP and FlexShares Morningstar

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

By analyzing existing cross correlation between SPDR SP Global and FlexShares Morningstar Global, you can compare the effects of market volatilities on SPDR SP and FlexShares Morningstar 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 FlexShares Morningstar. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and FlexShares Morningstar.

Diversification Opportunities for SPDR SP and FlexShares Morningstar

0.99

Correlation Coefficient

SPDR SP  FlexShares Morningstar

No risk reduction

The 3 months correlation between SPDR and FlexShares is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Global and FlexShares Morningstar Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares Morningstar 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 Global are associated (or correlated) with FlexShares Morningstar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares Morningstar has no effect on the direction of SPDR SP i.e., SPDR SP and FlexShares Morningstar go up and down completely randomly.

Pair Corralation between SPDR SP and FlexShares Morningstar

Considering the 90-day investment horizon SPDR SP Global is expected to under-perform the FlexShares Morningstar. In addition to that, SPDR SP is 1.04 times more volatile than FlexShares Morningstar Global. It trades about -0.05 of its total potential returns per unit of risk. FlexShares Morningstar Global is currently generating about -0.04 per unit of volatility. If you would invest  4,037  in FlexShares Morningstar Global on August 30, 2024 and sell it today you would lose (104.00) from holding FlexShares Morningstar Global or give up 2.58% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

SPDR SP Global  vs.  FlexShares Morningstar Global

SPDR SP Global

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR SP Global has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, SPDR SP is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

FlexShares Morningstar

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FlexShares Morningstar Global has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, FlexShares Morningstar is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with SPDR SP and FlexShares Morningstar

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

The idea behind SPDR SP Global and FlexShares Morningstar Global 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.