Correlation Between Xtrackers and SPDR SP

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

By analyzing existing cross correlation between Xtrackers SP 500 and SPDR SP 1500, you can compare the effects of market volatilities on Xtrackers 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 Xtrackers with a short position of SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xtrackers and SPDR SP.

Diversification Opportunities for Xtrackers and SPDR SP

0.78

Correlation Coefficient

Xtrackers  SPDR SP

Poor diversification

The 3 months correlation between Xtrackers and SPDR is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers SP 500 and SPDR SP 1500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP 1500 and Xtrackers 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 Xtrackers SP 500 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 1500 has no effect on the direction of Xtrackers i.e., Xtrackers and SPDR SP go up and down completely randomly.

Pair Corralation between Xtrackers and SPDR SP

Given the investment horizon of 90 days Xtrackers SP 500 is expected to under-perform the SPDR SP. In addition to that, Xtrackers is 1.25 times more volatile than SPDR SP 1500. It trades about -0.08 of its total potential returns per unit of risk. SPDR SP 1500 is currently generating about 0.01 per unit of volatility. If you would invest  18,435  in SPDR SP 1500 on December 20, 2024 and sell it today you would earn a total of  49.00  from holding SPDR SP 1500 or generate 0.27% return on investment over 90 days.

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

Xtrackers SP 500  vs.  SPDR SP 1500

Xtrackers SP 500

Risk-Adjusted Performance

Very Weak

Over the last 90 days Xtrackers SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Xtrackers is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

SPDR SP 1500

Risk-Adjusted Performance

Weak

Over the last 90 days SPDR SP 1500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable essential indicators, SPDR SP is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Xtrackers and SPDR SP

The main advantage of trading using opposite Xtrackers and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Xtrackers 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 Xtrackers SP 500 and SPDR SP 1500 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.