Correlation Between SPDR Portfolio and FlexShares Quality

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

Diversification Opportunities for SPDR Portfolio and FlexShares Quality

0.93

Correlation Coefficient

SPDR Portfolio  FlexShares Quality

Almost no diversification

The 3 months correlation between SPDR and FlexShares is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Portfolio SP and FlexShares Quality Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares Quality 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 FlexShares Quality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares Quality has no effect on the direction of SPDR Portfolio i.e., SPDR Portfolio and FlexShares Quality go up and down completely randomly.

Pair Corralation between SPDR Portfolio and FlexShares Quality

Given the investment horizon of 90 days SPDR Portfolio is expected to generate 2.14 times less return on investment than FlexShares Quality. In addition to that, SPDR Portfolio is 1.06 times more volatile than FlexShares Quality Dividend. It trades about 0.04 of its total potential returns per unit of risk. FlexShares Quality Dividend is currently generating about 0.1 per unit of volatility. If you would invest  6,214  in FlexShares Quality Dividend on December 5, 2024 and sell it today you would earn a total of  902.00  from holding FlexShares Quality Dividend or generate 14.52% return on investment over 90 days.

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

SPDR Portfolio SP  vs.  FlexShares Quality Dividend

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.

FlexShares Quality

Risk-Adjusted Performance

Very Weak

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

Pair Trading with SPDR Portfolio and FlexShares Quality

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

The idea behind SPDR Portfolio SP and FlexShares Quality Dividend 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.