Correlation Between SPDR SP and SPDR Dow

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

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

Diversification Opportunities for SPDR SP and SPDR Dow

0.84

Correlation Coefficient

SPDR SP  SPDR Dow

Very poor diversification

The 3 months correlation between SPDR and SPDR is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Regional and SPDR Dow Jones in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Dow Jones 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 Regional are associated (or correlated) with SPDR Dow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Dow Jones has no effect on the direction of SPDR SP i.e., SPDR SP and SPDR Dow go up and down completely randomly.

Pair Corralation between SPDR SP and SPDR Dow

Assuming the 90 days trading horizon SPDR SP Regional is expected to generate 3.05 times more return on investment than SPDR Dow. However, SPDR SP is 3.05 times more volatile than SPDR Dow Jones. It trades about 0.12 of its potential returns per unit of risk. SPDR Dow Jones is currently generating about 0.17 per unit of risk. If you would invest  85,154  in SPDR SP Regional on September 30, 2024 and sell it today you would earn a total of  46,006  from holding SPDR SP Regional or generate 54.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.16%
Values	Daily Returns

SPDR SP Regional  vs.  SPDR Dow Jones

SPDR SP Regional

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Regional are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, SPDR SP showed solid returns over the last few months and may actually be approaching a breakup point.

SPDR Dow Jones

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Dow Jones are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, SPDR Dow is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with SPDR SP and SPDR Dow

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

The idea behind SPDR SP Regional and SPDR Dow Jones 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.