Correlation Between SPDR SP and Avantis Small

Can any of the company-specific risk be diversified away by investing in both SPDR SP and Avantis 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 Avantis Small 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 Avantis Small Cap, you can compare the effects of market volatilities on SPDR SP and Avantis 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 Avantis Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and Avantis Small.

Diversification Opportunities for SPDR SP and Avantis Small

0.99

Correlation Coefficient

SPDR SP  Avantis Small

No risk reduction

The 3 months correlation between SPDR and Avantis is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 600 and Avantis Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avantis 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 600 are associated (or correlated) with Avantis Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avantis Small Cap has no effect on the direction of SPDR SP i.e., SPDR SP and Avantis Small go up and down completely randomly.

Pair Corralation between SPDR SP and Avantis Small

Given the investment horizon of 90 days SPDR SP 600 is expected to under-perform the Avantis Small. But the etf apears to be less risky and, when comparing its historical volatility, SPDR SP 600 is 1.02 times less risky than Avantis Small. The etf trades about -0.14 of its potential returns per unit of risk. The Avantis Small Cap is currently generating about -0.13 of returns per unit of risk over similar time horizon. If you would invest  9,580  in Avantis Small Cap on December 28, 2024 and sell it today you would lose (868.00) from holding Avantis Small Cap or give up 9.06% 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.  Avantis Small Cap

SPDR SP 600

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR SP 600 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Etf's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the fund sophisticated investors.

Avantis Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Avantis Small Cap has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Etf's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the fund sophisticated investors.

Pair Trading with SPDR SP and Avantis Small

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

The idea behind SPDR SP 600 and Avantis 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.

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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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.