Correlation Between SPDR Portfolio and Invesco NASDAQ

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

By analyzing existing cross correlation between SPDR Portfolio SP and Invesco NASDAQ 100, you can compare the effects of market volatilities on SPDR Portfolio and Invesco NASDAQ 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 Invesco NASDAQ. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR Portfolio and Invesco NASDAQ.

Diversification Opportunities for SPDR Portfolio and Invesco NASDAQ

0.8

Correlation Coefficient

SPDR Portfolio  Invesco NASDAQ

Very poor diversification

The 3 months correlation between SPDR and Invesco is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Portfolio SP and Invesco NASDAQ 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco NASDAQ 100 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 SP are associated (or correlated) with Invesco NASDAQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco NASDAQ 100 has no effect on the direction of SPDR Portfolio i.e., SPDR Portfolio and Invesco NASDAQ go up and down completely randomly.

Pair Corralation between SPDR Portfolio and Invesco NASDAQ

Given the investment horizon of 90 days SPDR Portfolio is expected to generate 1.06 times less return on investment than Invesco NASDAQ. But when comparing it to its historical volatility, SPDR Portfolio SP is 1.41 times less risky than Invesco NASDAQ. It trades about 0.11 of its potential returns per unit of risk. Invesco NASDAQ 100 is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  15,350  in Invesco NASDAQ 100 on December 2, 2024 and sell it today you would earn a total of  5,576  from holding Invesco NASDAQ 100 or generate 36.33% return on investment over 90 days.

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

SPDR Portfolio SP  vs.  Invesco NASDAQ 100

SPDR Portfolio SP

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR Portfolio SP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable essential indicators, SPDR Portfolio is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Invesco NASDAQ 100

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco NASDAQ 100 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Invesco NASDAQ is not utilizing all of its potentials. The new stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with SPDR Portfolio and Invesco NASDAQ

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

The idea behind SPDR Portfolio SP and Invesco NASDAQ 100 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.