Correlation Between SPTSX Dividend and Guardian

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

By analyzing existing cross correlation between SPTSX Dividend Aristocrats and Guardian i3 Quality, you can compare the effects of market volatilities on SPTSX Dividend and Guardian 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 SPTSX Dividend with a short position of Guardian. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPTSX Dividend and Guardian.

Diversification Opportunities for SPTSX Dividend and Guardian

0.06

Correlation Coefficient

SPTSX Dividend  Guardian

Significant diversification

The 3 months correlation between SPTSX and Guardian is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding SPTSX Dividend Aristocrats and Guardian i3 Quality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guardian i3 Quality and SPTSX Dividend 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 SPTSX Dividend Aristocrats are associated (or correlated) with Guardian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guardian i3 Quality has no effect on the direction of SPTSX Dividend i.e., SPTSX Dividend and Guardian go up and down completely randomly.

Pair Corralation between SPTSX Dividend and Guardian

Assuming the 90 days trading horizon SPTSX Dividend is expected to generate 3.63 times less return on investment than Guardian. But when comparing it to its historical volatility, SPTSX Dividend Aristocrats is 1.84 times less risky than Guardian. It trades about 0.05 of its potential returns per unit of risk. Guardian i3 Quality is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,809  in Guardian i3 Quality on October 7, 2024 and sell it today you would earn a total of  1,316  from holding Guardian i3 Quality or generate 72.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.6%
Values	Daily Returns

SPTSX Dividend Aristocrats  vs.  Guardian i3 Quality

Pair Trading with SPTSX Dividend and Guardian

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

The idea behind SPTSX Dividend Aristocrats and Guardian i3 Quality 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.