Correlation Between SPDR Portfolio and High Yield

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

By analyzing existing cross correlation between SPDR Portfolio Aggregate and High Yield Municipal Fund, you can compare the effects of market volatilities on SPDR Portfolio and High Yield 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 Portfolio with a short position of High Yield. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR Portfolio and High Yield.

Diversification Opportunities for SPDR Portfolio and High Yield

0.47

Correlation Coefficient

SPDR Portfolio  High Yield

Very weak diversification

The 3 months correlation between SPDR and High is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Portfolio Aggregate and High Yield Municipal Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on High Yield Municipal and SPDR Portfolio 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 Portfolio Aggregate are associated (or correlated) with High Yield. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of High Yield Municipal has no effect on the direction of SPDR Portfolio i.e., SPDR Portfolio and High Yield go up and down completely randomly.

Pair Corralation between SPDR Portfolio and High Yield

Given the investment horizon of 90 days SPDR Portfolio Aggregate is expected to under-perform the High Yield. In addition to that, SPDR Portfolio is 1.06 times more volatile than High Yield Municipal Fund. It trades about -0.09 of its total potential returns per unit of risk. High Yield Municipal Fund is currently generating about 0.04 per unit of volatility. If you would invest  897.00  in High Yield Municipal Fund on September 12, 2024 and sell it today you would earn a total of  7.00  from holding High Yield Municipal Fund or generate 0.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

SPDR Portfolio Aggregate  vs.  High Yield Municipal Fund

SPDR Portfolio Aggregate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR Portfolio Aggregate has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, SPDR Portfolio is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

High Yield Municipal

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in High Yield Municipal Fund are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, High Yield is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with SPDR Portfolio and High Yield

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

The idea behind SPDR Portfolio Aggregate and High Yield Municipal Fund 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.