Correlation Between SPDR SP and Vanguard Russell

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

By analyzing existing cross correlation between SPDR SP 600 and Vanguard Russell 2000, you can compare the effects of market volatilities on SPDR SP and Vanguard Russell 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 Vanguard Russell. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and Vanguard Russell.

Diversification Opportunities for SPDR SP and Vanguard Russell

0.95

Correlation Coefficient

SPDR SP  Vanguard Russell

Almost no diversification

The 3 months correlation between SPDR and Vanguard is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 600 and Vanguard Russell 2000 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Russell 2000 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 600 are associated (or correlated) with Vanguard Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Russell 2000 has no effect on the direction of SPDR SP i.e., SPDR SP and Vanguard Russell go up and down completely randomly.

Pair Corralation between SPDR SP and Vanguard Russell

Given the investment horizon of 90 days SPDR SP 600 is expected to under-perform the Vanguard Russell. But the etf apears to be less risky and, when comparing its historical volatility, SPDR SP 600 is 1.2 times less risky than Vanguard Russell. The etf trades about -0.26 of its potential returns per unit of risk. The Vanguard Russell 2000 is currently generating about -0.16 of returns per unit of risk over similar time horizon. If you would invest  22,544  in Vanguard Russell 2000 on October 8, 2024 and sell it today you would lose (1,005) from holding Vanguard Russell 2000 or give up 4.46% of portfolio value over 90 days.

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

SPDR SP 600  vs.  Vanguard Russell 2000

SPDR SP 600

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR SP 600 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, SPDR SP is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Vanguard Russell 2000

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Russell 2000 are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Vanguard Russell is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with SPDR SP and Vanguard Russell

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

The idea behind SPDR SP 600 and Vanguard Russell 2000 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..