Correlation Between SPDR SSGA and SPDR SP

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

By analyzing existing cross correlation between SPDR SSGA Small and SPDR SP 400, you can compare the effects of market volatilities on SPDR SSGA and SPDR SP 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 SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SSGA and SPDR SP.

Diversification Opportunities for SPDR SSGA and SPDR SP

0.89

Correlation Coefficient

SPDR SSGA  SPDR SP

Very poor diversification

The 3 months correlation between SPDR and SPDR is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SSGA Small and SPDR SP 400 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP 400 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 Small are associated (or correlated) with SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP 400 has no effect on the direction of SPDR SSGA i.e., SPDR SSGA and SPDR SP go up and down completely randomly.

Pair Corralation between SPDR SSGA and SPDR SP

Given the investment horizon of 90 days SPDR SSGA Small is expected to under-perform the SPDR SP. In addition to that, SPDR SSGA is 1.11 times more volatile than SPDR SP 400. It trades about -0.22 of its total potential returns per unit of risk. SPDR SP 400 is currently generating about -0.13 per unit of volatility. If you would invest  8,483  in SPDR SP 400 on October 11, 2024 and sell it today you would lose (432.00) from holding SPDR SP 400 or give up 5.09% of portfolio value over 90 days.

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

SPDR SSGA Small  vs.  SPDR SP 400

SPDR SSGA Small

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SSGA Small are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable essential indicators, SPDR SSGA is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

SPDR SP 400

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP 400 are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, SPDR SP is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with SPDR SSGA and SPDR SP

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

The idea behind SPDR SSGA Small and SPDR SP 400 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 Global Correlations module to find global opportunities by holding instruments from different markets.