Correlation Between SPTSX Dividend and Leading Edge

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

Diversification Opportunities for SPTSX Dividend and Leading Edge

-0.34

Correlation Coefficient

SPTSX Dividend  Leading Edge

Very good diversification

The 3 months correlation between SPTSX and Leading is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding SPTSX Dividend Aristocrats and Leading Edge Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leading Edge Materials 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 Leading Edge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leading Edge Materials has no effect on the direction of SPTSX Dividend i.e., SPTSX Dividend and Leading Edge go up and down completely randomly.

Pair Corralation between SPTSX Dividend and Leading Edge

Assuming the 90 days trading horizon SPTSX Dividend Aristocrats is expected to generate 0.09 times more return on investment than Leading Edge. However, SPTSX Dividend Aristocrats is 11.29 times less risky than Leading Edge. It trades about 0.21 of its potential returns per unit of risk. Leading Edge Materials is currently generating about -0.01 per unit of risk. If you would invest  31,420  in SPTSX Dividend Aristocrats on September 29, 2024 and sell it today you would earn a total of  4,720  from holding SPTSX Dividend Aristocrats or generate 15.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

SPTSX Dividend Aristocrats  vs.  Leading Edge Materials

Pair Trading with SPTSX Dividend and Leading Edge

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

The idea behind SPTSX Dividend Aristocrats and Leading Edge Materials 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.