Correlation Between ETRACS Quarterly and SPDR Portfolio

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

By analyzing existing cross correlation between ETRACS Quarterly Pay and SPDR Portfolio MSCI, you can compare the effects of market volatilities on ETRACS Quarterly and SPDR Portfolio 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 ETRACS Quarterly with a short position of SPDR Portfolio. Check out your portfolio center. Please also check ongoing floating volatility patterns of ETRACS Quarterly and SPDR Portfolio.

Diversification Opportunities for ETRACS Quarterly and SPDR Portfolio

0.31

Correlation Coefficient

ETRACS Quarterly  SPDR Portfolio

Weak diversification

The 3 months correlation between ETRACS and SPDR is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding ETRACS Quarterly Pay and SPDR Portfolio MSCI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Portfolio MSCI and ETRACS Quarterly 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 ETRACS Quarterly Pay are associated (or correlated) with SPDR Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Portfolio MSCI has no effect on the direction of ETRACS Quarterly i.e., ETRACS Quarterly and SPDR Portfolio go up and down completely randomly.

Pair Corralation between ETRACS Quarterly and SPDR Portfolio

Given the investment horizon of 90 days ETRACS Quarterly Pay is expected to generate 1.77 times more return on investment than SPDR Portfolio. However, ETRACS Quarterly is 1.77 times more volatile than SPDR Portfolio MSCI. It trades about 0.18 of its potential returns per unit of risk. SPDR Portfolio MSCI is currently generating about -0.03 per unit of risk. If you would invest  5,760  in ETRACS Quarterly Pay on December 26, 2024 and sell it today you would earn a total of  1,078  from holding ETRACS Quarterly Pay or generate 18.71% return on investment over 90 days.

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

ETRACS Quarterly Pay  vs.  SPDR Portfolio MSCI

ETRACS Quarterly Pay

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ETRACS Quarterly Pay are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, ETRACS Quarterly reported solid returns over the last few months and may actually be approaching a breakup point.

SPDR Portfolio MSCI

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR Portfolio MSCI has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, SPDR Portfolio is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with ETRACS Quarterly and SPDR Portfolio

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

The idea behind ETRACS Quarterly Pay and SPDR Portfolio MSCI 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.