Correlation Between SPDR SSGA and VSDM

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

By analyzing existing cross correlation between SPDR SSGA My2027 and VSDM, you can compare the effects of market volatilities on SPDR SSGA and VSDM 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 SSGA with a short position of VSDM. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SSGA and VSDM.

Diversification Opportunities for SPDR SSGA and VSDM

0.7

Correlation Coefficient

SPDR SSGA  VSDM

Poor diversification

The 3 months correlation between SPDR and VSDM is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SSGA My2027 and VSDM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VSDM and SPDR SSGA 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 SSGA My2027 are associated (or correlated) with VSDM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VSDM has no effect on the direction of SPDR SSGA i.e., SPDR SSGA and VSDM go up and down completely randomly.

Pair Corralation between SPDR SSGA and VSDM

Given the investment horizon of 90 days SPDR SSGA My2027 is expected to generate 0.78 times more return on investment than VSDM. However, SPDR SSGA My2027 is 1.28 times less risky than VSDM. It trades about -0.27 of its potential returns per unit of risk. VSDM is currently generating about -0.32 per unit of risk. If you would invest  2,493  in SPDR SSGA My2027 on October 10, 2024 and sell it today you would lose (15.00) from holding SPDR SSGA My2027 or give up 0.6% of portfolio value over 90 days.

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

SPDR SSGA My2027  vs.  VSDM

SPDR SSGA My2027

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days SPDR SSGA My2027 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable primary indicators, SPDR SSGA is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

VSDM

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with SPDR SSGA and VSDM

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

The idea behind SPDR SSGA My2027 and VSDM 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.