Correlation Between Freedom Day and SPDR SP

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

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

Diversification Opportunities for Freedom Day and SPDR SP

0.88

Correlation Coefficient

Freedom Day  SPDR SP

Very poor diversification

The 3 months correlation between Freedom and SPDR is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Freedom Day Dividend and SPDR SP Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Global and Freedom Day 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 Freedom Day Dividend 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 Global has no effect on the direction of Freedom Day i.e., Freedom Day and SPDR SP go up and down completely randomly.

Pair Corralation between Freedom Day and SPDR SP

Given the investment horizon of 90 days Freedom Day Dividend is expected to generate 1.01 times more return on investment than SPDR SP. However, Freedom Day is 1.01 times more volatile than SPDR SP Global. It trades about 0.12 of its potential returns per unit of risk. SPDR SP Global is currently generating about 0.12 per unit of risk. If you would invest  2,516  in Freedom Day Dividend on December 3, 2024 and sell it today you would earn a total of  869.89  from holding Freedom Day Dividend or generate 34.57% return on investment over 90 days.

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

Freedom Day Dividend  vs.  SPDR SP Global

Freedom Day Dividend

Risk-Adjusted Performance

Very Weak

Over the last 90 days Freedom Day Dividend has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Freedom Day is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

SPDR SP Global

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR SP Global has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong forward indicators, SPDR SP is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Freedom Day and SPDR SP

The main advantage of trading using opposite Freedom Day and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Freedom Day 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 Freedom Day Dividend and SPDR SP Global 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.