Correlation Between SPDR SP and VictoryShares Small

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

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

Diversification Opportunities for SPDR SP and VictoryShares Small

0.82

Correlation Coefficient

SPDR SP  VictoryShares Small

Very poor diversification

The 3 months correlation between SPDR and VictoryShares is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 400 and VictoryShares Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VictoryShares Small Cap 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 400 are associated (or correlated) with VictoryShares Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VictoryShares Small Cap has no effect on the direction of SPDR SP i.e., SPDR SP and VictoryShares Small go up and down completely randomly.

Pair Corralation between SPDR SP and VictoryShares Small

Given the investment horizon of 90 days SPDR SP 400 is expected to generate 0.95 times more return on investment than VictoryShares Small. However, SPDR SP 400 is 1.05 times less risky than VictoryShares Small. It trades about 0.06 of its potential returns per unit of risk. VictoryShares Small Cap is currently generating about 0.05 per unit of risk. If you would invest  6,265  in SPDR SP 400 on September 14, 2024 and sell it today you would earn a total of  2,172  from holding SPDR SP 400 or generate 34.67% return on investment over 90 days.

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

SPDR SP 400  vs.  VictoryShares Small Cap

SPDR SP 400

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP 400 are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

VictoryShares Small Cap

Risk-Adjusted Performance

8 of 100

OK

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

Pair Trading with SPDR SP and VictoryShares Small

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

The idea behind SPDR SP 400 and VictoryShares Small Cap 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.