Correlation Between SPDR Portfolio and FlexShares Morningstar

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

By analyzing existing cross correlation between SPDR Portfolio Emerging and FlexShares Morningstar Emerging, you can compare the effects of market volatilities on SPDR Portfolio and FlexShares Morningstar 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 FlexShares Morningstar. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR Portfolio and FlexShares Morningstar.

Diversification Opportunities for SPDR Portfolio and FlexShares Morningstar

0.96

Correlation Coefficient

SPDR Portfolio  FlexShares Morningstar

Almost no diversification

The 3 months correlation between SPDR and FlexShares is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Portfolio Emerging and FlexShares Morningstar Emergin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares Morningstar 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 Emerging are associated (or correlated) with FlexShares Morningstar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares Morningstar has no effect on the direction of SPDR Portfolio i.e., SPDR Portfolio and FlexShares Morningstar go up and down completely randomly.

Pair Corralation between SPDR Portfolio and FlexShares Morningstar

Given the investment horizon of 90 days SPDR Portfolio is expected to generate 1.3 times less return on investment than FlexShares Morningstar. But when comparing it to its historical volatility, SPDR Portfolio Emerging is 1.05 times less risky than FlexShares Morningstar. It trades about 0.05 of its potential returns per unit of risk. FlexShares Morningstar Emerging is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  5,108  in FlexShares Morningstar Emerging on December 29, 2024 and sell it today you would earn a total of  169.00  from holding FlexShares Morningstar Emerging or generate 3.31% return on investment over 90 days.

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

SPDR Portfolio Emerging  vs.  FlexShares Morningstar Emergin

SPDR Portfolio Emerging

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Portfolio Emerging are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, SPDR Portfolio is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

FlexShares Morningstar

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in FlexShares Morningstar Emerging are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, FlexShares Morningstar is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with SPDR Portfolio and FlexShares Morningstar

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

The idea behind SPDR Portfolio Emerging and FlexShares Morningstar Emerging 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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.