Correlation Between SPDR SP and AB Low

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

Diversification Opportunities for SPDR SP and AB Low

0.9

Correlation Coefficient

SPDR SP  AB Low

Almost no diversification

The 3 months correlation between SPDR and LOWV is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 500 and AB Low Volatility in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AB Low Volatility 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 AB Low. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AB Low Volatility has no effect on the direction of SPDR SP i.e., SPDR SP and AB Low go up and down completely randomly.

Pair Corralation between SPDR SP and AB Low

Considering the 90-day investment horizon SPDR SP 500 is expected to under-perform the AB Low. In addition to that, SPDR SP is 1.33 times more volatile than AB Low Volatility. It trades about -0.07 of its total potential returns per unit of risk. AB Low Volatility is currently generating about -0.02 per unit of volatility. If you would invest  7,119  in AB Low Volatility on December 27, 2024 and sell it today you would lose (79.00) from holding AB Low Volatility or give up 1.11% of portfolio value over 90 days.

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

SPDR SP 500  vs.  AB Low Volatility

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 fairly strong basic indicators, SPDR SP is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

AB Low Volatility

Risk-Adjusted Performance

Very Weak

Over the last 90 days AB Low Volatility has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, AB Low is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with SPDR SP and AB Low

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

The idea behind SPDR SP 500 and AB Low Volatility 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.