Correlation Between SPDR SP and Merrill Lynch

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

Diversification Opportunities for SPDR SP and Merrill Lynch

0.29

Correlation Coefficient

SPDR SP  Merrill Lynch

Modest diversification

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

Pair Corralation between SPDR SP and Merrill Lynch

Considering the 90-day investment horizon SPDR SP 500 is expected to generate 0.04 times more return on investment than Merrill Lynch. However, SPDR SP 500 is 22.84 times less risky than Merrill Lynch. It trades about 0.12 of its potential returns per unit of risk. Merrill Lynch is currently generating about -0.18 per unit of risk. If you would invest  37,721  in SPDR SP 500 on September 29, 2024 and sell it today you would earn a total of  21,780  from holding SPDR SP 500 or generate 57.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	6.05%
Values	Daily Returns

SPDR SP 500  vs.  Merrill Lynch

SPDR SP 500

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP 500 are ranked lower than 6 (%) 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 recent stock price disturbance, may contribute to short-term losses for the investors.

Merrill Lynch

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Merrill Lynch has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Merrill Lynch is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with SPDR SP and Merrill Lynch

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

The idea behind SPDR SP 500 and Merrill Lynch 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.