Correlation Between SPDR SP and KraneShares CSI

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

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

Diversification Opportunities for SPDR SP and KraneShares CSI

0.99

Correlation Coefficient

SPDR SP  KraneShares CSI

No risk reduction

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

Pair Corralation between SPDR SP and KraneShares CSI

Considering the 90-day investment horizon SPDR SP is expected to generate 1.55 times less return on investment than KraneShares CSI. But when comparing it to its historical volatility, SPDR SP China is 1.52 times less risky than KraneShares CSI. It trades about 0.13 of its potential returns per unit of risk. KraneShares CSI China is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  2,911  in KraneShares CSI China on December 29, 2024 and sell it today you would earn a total of  593.00  from holding KraneShares CSI China or generate 20.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

SPDR SP China  vs.  KraneShares CSI China

SPDR SP China

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP China are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather sluggish basic indicators, SPDR SP exhibited solid returns over the last few months and may actually be approaching a breakup point.

KraneShares CSI China

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in KraneShares CSI China are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent technical and fundamental indicators, KraneShares CSI sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SPDR SP and KraneShares CSI

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

The idea behind SPDR SP China and KraneShares CSI China 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.