Correlation Between PPG Industries and SPDR Series

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

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

Diversification Opportunities for PPG Industries and SPDR Series

-0.11

Correlation Coefficient

PPG Industries  SPDR Series

Good diversification

The 3 months correlation between PPG and SPDR is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding PPG Industries and SPDR Series Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Series Trust and PPG Industries 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 PPG Industries are associated (or correlated) with SPDR Series. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Series Trust has no effect on the direction of PPG Industries i.e., PPG Industries and SPDR Series go up and down completely randomly.

Pair Corralation between PPG Industries and SPDR Series

Assuming the 90 days trading horizon PPG Industries is expected to under-perform the SPDR Series. But the stock apears to be less risky and, when comparing its historical volatility, PPG Industries is 1.01 times less risky than SPDR Series. The stock trades about -0.01 of its potential returns per unit of risk. The SPDR Series Trust is currently generating about 0.39 of returns per unit of risk over similar time horizon. If you would invest  264,300  in SPDR Series Trust on October 27, 2024 and sell it today you would earn a total of  42,719  from holding SPDR Series Trust or generate 16.16% return on investment over 90 days.

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

PPG Industries  vs.  SPDR Series Trust

PPG Industries

Risk-Adjusted Performance

0 of 100

Very Weak

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

SPDR Series Trust

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Series Trust are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, SPDR Series showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PPG Industries and SPDR Series

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

The idea behind PPG Industries and SPDR Series Trust 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.