Correlation Between SPDR Portfolio and AAM SP

Can any of the company-specific risk be diversified away by investing in both SPDR Portfolio and AAM 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 Portfolio and AAM SP 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 AAM SP 500, you can compare the effects of market volatilities on SPDR Portfolio and AAM 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 Portfolio with a short position of AAM SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR Portfolio and AAM SP.

Diversification Opportunities for SPDR Portfolio and AAM SP

0.55

Correlation Coefficient

SPDR Portfolio  AAM SP

Very weak diversification

The 3 months correlation between SPDR and AAM is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Portfolio Aggregate and AAM SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AAM SP 500 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 AAM SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AAM SP 500 has no effect on the direction of SPDR Portfolio i.e., SPDR Portfolio and AAM SP go up and down completely randomly.

Pair Corralation between SPDR Portfolio and AAM SP

Given the investment horizon of 90 days SPDR Portfolio Aggregate is expected to generate 0.31 times more return on investment than AAM SP. However, SPDR Portfolio Aggregate is 3.27 times less risky than AAM SP. It trades about -0.38 of its potential returns per unit of risk. AAM SP 500 is currently generating about -0.16 per unit of risk. If you would invest  2,540  in SPDR Portfolio Aggregate on October 12, 2024 and sell it today you would lose (51.00) from holding SPDR Portfolio Aggregate or give up 2.01% of portfolio value over 90 days.

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

SPDR Portfolio Aggregate  vs.  AAM SP 500

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.

AAM SP 500

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AAM SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable fundamental indicators, AAM 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 Portfolio and AAM SP

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

The idea behind SPDR Portfolio Aggregate and AAM SP 500 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.