Correlation Between SPDR SP and Vanguard STAR

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

By analyzing existing cross correlation between SPDR SP 500 and Vanguard STAR Funds, you can compare the effects of market volatilities on SPDR SP and Vanguard STAR 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 SP with a short position of Vanguard STAR. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and Vanguard STAR.

Diversification Opportunities for SPDR SP and Vanguard STAR

-0.36

Correlation Coefficient

SPDR SP  Vanguard STAR

Very good diversification

The 3 months correlation between SPDR and Vanguard is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 500 and Vanguard STAR Funds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard STAR Funds and SPDR SP 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 SP 500 are associated (or correlated) with Vanguard STAR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard STAR Funds has no effect on the direction of SPDR SP i.e., SPDR SP and Vanguard STAR go up and down completely randomly.

Pair Corralation between SPDR SP and Vanguard STAR

Assuming the 90 days trading horizon SPDR SP 500 is expected to under-perform the Vanguard STAR. But the etf apears to be less risky and, when comparing its historical volatility, SPDR SP 500 is 1.72 times less risky than Vanguard STAR. The etf trades about -0.12 of its potential returns per unit of risk. The Vanguard STAR Funds is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  119,833  in Vanguard STAR Funds on December 30, 2024 and sell it today you would earn a total of  8,833  from holding Vanguard STAR Funds or generate 7.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

SPDR SP 500  vs.  Vanguard STAR Funds

SPDR SP 500

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Vanguard STAR Funds

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard STAR Funds are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Vanguard STAR may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with SPDR SP and Vanguard STAR

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

The idea behind SPDR SP 500 and Vanguard STAR Funds 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.