Correlation Between Vanguard and SPDR SP

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

By analyzing existing cross correlation between Vanguard SP Mid Cap and SPDR SP 400, you can compare the effects of market volatilities on Vanguard and SPDR SP 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 Vanguard with a short position of SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard and SPDR SP.

Diversification Opportunities for Vanguard and SPDR SP

1.0

Correlation Coefficient

Vanguard  SPDR SP

No risk reduction

The 3 months correlation between Vanguard and SPDR is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard SP Mid Cap and SPDR SP 400 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP 400 and Vanguard 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 Vanguard SP Mid Cap are associated (or correlated) with SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP 400 has no effect on the direction of Vanguard i.e., Vanguard and SPDR SP go up and down completely randomly.

Pair Corralation between Vanguard and SPDR SP

Given the investment horizon of 90 days Vanguard is expected to generate 1.07 times less return on investment than SPDR SP. But when comparing it to its historical volatility, Vanguard SP Mid Cap is 1.01 times less risky than SPDR SP. It trades about 0.17 of its potential returns per unit of risk. SPDR SP 400 is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  8,956  in SPDR SP 400 on September 17, 2024 and sell it today you would earn a total of  246.00  from holding SPDR SP 400 or generate 2.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.24%
Values	Daily Returns

Vanguard SP Mid Cap  vs.  SPDR SP 400

Vanguard SP Mid

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard SP Mid Cap are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Vanguard is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

SPDR SP 400

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP 400 are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vanguard and SPDR SP

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

The idea behind Vanguard SP Mid Cap and SPDR SP 400 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.

Check out your portfolio center.

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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.