Correlation Between SPDR SP and ABHY

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

Diversification Opportunities for SPDR SP and ABHY

-0.29

Correlation Coefficient

SPDR SP  ABHY

Very good diversification

The 3 months correlation between SPDR and ABHY is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 500 and ABHY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABHY 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 ABHY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABHY has no effect on the direction of SPDR SP i.e., SPDR SP and ABHY go up and down completely randomly.

Pair Corralation between SPDR SP and ABHY

Considering the 90-day investment horizon SPDR SP 500 is expected to generate 3.14 times more return on investment than ABHY. However, SPDR SP is 3.14 times more volatile than ABHY. It trades about 0.0 of its potential returns per unit of risk. ABHY is currently generating about -0.11 per unit of risk. If you would invest  59,618  in SPDR SP 500 on October 9, 2024 and sell it today you would lose (82.00) from holding SPDR SP 500 or give up 0.14% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.5%
Values	Daily Returns

SPDR SP 500  vs.  ABHY

SPDR SP 500

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP 500 are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, SPDR SP is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

ABHY

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ABHY has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical indicators, ABHY 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 SP and ABHY

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

The idea behind SPDR SP 500 and ABHY 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.