Correlation Between SPDR Portfolio and Vanguard Value

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

Diversification Opportunities for SPDR Portfolio and Vanguard Value

-0.52

Correlation Coefficient

SPDR Portfolio  Vanguard Value

Excellent diversification

The 3 months correlation between SPDR and Vanguard is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Portfolio Aggregate and Vanguard Value Factor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Value Factor 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 Vanguard Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Value Factor has no effect on the direction of SPDR Portfolio i.e., SPDR Portfolio and Vanguard Value go up and down completely randomly.

Pair Corralation between SPDR Portfolio and Vanguard Value

Given the investment horizon of 90 days SPDR Portfolio is expected to generate 3.99 times less return on investment than Vanguard Value. But when comparing it to its historical volatility, SPDR Portfolio Aggregate is 2.82 times less risky than Vanguard Value. It trades about 0.04 of its potential returns per unit of risk. Vanguard Value Factor is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  9,449  in Vanguard Value Factor on September 17, 2024 and sell it today you would earn a total of  2,951  from holding Vanguard Value Factor or generate 31.23% return on investment over 90 days.

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

SPDR Portfolio Aggregate  vs.  Vanguard Value Factor

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.

Vanguard Value Factor

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Value Factor are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Vanguard Value 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 Vanguard Value

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

The idea behind SPDR Portfolio Aggregate and Vanguard Value Factor 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.