Correlation Between SPDR SP and Vanguard Ultra

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

Diversification Opportunities for SPDR SP and Vanguard Ultra

0.84

Correlation Coefficient

SPDR SP  Vanguard Ultra

Very poor diversification

The 3 months correlation between SPDR and Vanguard is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 500 and Vanguard Ultra Short Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Ultra Short 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 Ultra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Ultra Short has no effect on the direction of SPDR SP i.e., SPDR SP and Vanguard Ultra go up and down completely randomly.

Pair Corralation between SPDR SP and Vanguard Ultra

Considering the 90-day investment horizon SPDR SP 500 is expected to generate 14.08 times more return on investment than Vanguard Ultra. However, SPDR SP is 14.08 times more volatile than Vanguard Ultra Short Bond. It trades about 0.14 of its potential returns per unit of risk. Vanguard Ultra Short Bond is currently generating about 0.42 per unit of risk. If you would invest  44,909  in SPDR SP 500 on September 27, 2024 and sell it today you would earn a total of  15,221  from holding SPDR SP 500 or generate 33.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.63%
Values	Daily Returns

SPDR SP 500  vs.  Vanguard Ultra Short Bond

SPDR SP 500

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP 500 are ranked lower than 9 (%) 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.

Vanguard Ultra Short

Risk-Adjusted Performance

25 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Ultra Short Bond are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Vanguard Ultra is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with SPDR SP and Vanguard Ultra

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

The idea behind SPDR SP 500 and Vanguard Ultra Short Bond 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.