Correlation Between SPDR Portfolio and Litman Gregory

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

Diversification Opportunities for SPDR Portfolio and Litman Gregory

0.92

Correlation Coefficient

SPDR Portfolio  Litman Gregory

Almost no diversification

The 3 months correlation between SPDR and Litman is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Portfolio SP and Litman Gregory Funds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Litman Gregory Funds 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 Litman Gregory. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Litman Gregory Funds has no effect on the direction of SPDR Portfolio i.e., SPDR Portfolio and Litman Gregory go up and down completely randomly.

Pair Corralation between SPDR Portfolio and Litman Gregory

Given the investment horizon of 90 days SPDR Portfolio SP is expected to under-perform the Litman Gregory. In addition to that, SPDR Portfolio is 1.01 times more volatile than Litman Gregory Funds. It trades about -0.07 of its total potential returns per unit of risk. Litman Gregory Funds is currently generating about -0.01 per unit of volatility. If you would invest  1,214  in Litman Gregory Funds on December 1, 2024 and sell it today you would lose (5.00) from holding Litman Gregory Funds or give up 0.41% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.36%
Values	Daily Returns

SPDR Portfolio SP  vs.  Litman Gregory Funds

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. In spite of fairly stable basic indicators, SPDR Portfolio is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Litman Gregory Funds

Risk-Adjusted Performance

Very Weak

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

Pair Trading with SPDR Portfolio and Litman Gregory

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

The idea behind SPDR Portfolio SP and Litman Gregory Funds 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 Transaction History module to view history of all your transactions and understand their impact on performance.