Correlation Between SPDR Portfolio and HCM Defender

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

By analyzing existing cross correlation between SPDR Portfolio SP and HCM Defender 100, you can compare the effects of market volatilities on SPDR Portfolio and HCM Defender 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 Portfolio with a short position of HCM Defender. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR Portfolio and HCM Defender.

Diversification Opportunities for SPDR Portfolio and HCM Defender

0.64

Correlation Coefficient

SPDR Portfolio  HCM Defender

Poor diversification

The 3 months correlation between SPDR and HCM is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Portfolio SP and HCM Defender 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HCM Defender 100 and SPDR Portfolio 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 Portfolio SP are associated (or correlated) with HCM Defender. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HCM Defender 100 has no effect on the direction of SPDR Portfolio i.e., SPDR Portfolio and HCM Defender go up and down completely randomly.

Pair Corralation between SPDR Portfolio and HCM Defender

Given the investment horizon of 90 days SPDR Portfolio SP is expected to generate 0.79 times more return on investment than HCM Defender. However, SPDR Portfolio SP is 1.27 times less risky than HCM Defender. It trades about 0.0 of its potential returns per unit of risk. HCM Defender 100 is currently generating about -0.05 per unit of risk. If you would invest  8,787  in SPDR Portfolio SP on December 1, 2024 and sell it today you would lose (28.00) from holding SPDR Portfolio SP or give up 0.32% of portfolio value over 90 days.

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

SPDR Portfolio SP  vs.  HCM Defender 100

SPDR Portfolio SP

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR Portfolio SP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, SPDR Portfolio is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

HCM Defender 100

Risk-Adjusted Performance

Very Weak

Over the last 90 days HCM Defender 100 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, HCM Defender is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with SPDR Portfolio and HCM Defender

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

The idea behind SPDR Portfolio SP and HCM Defender 100 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.