Correlation Between SPDR SP and Change Finance

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

Diversification Opportunities for SPDR SP and Change Finance

0.97

Correlation Coefficient

SPDR SP  Change Finance

Almost no diversification

The 3 months correlation between SPDR and Change is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 500 and Change Finance Diversified in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Change Finance Diver 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 Change Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Change Finance Diver has no effect on the direction of SPDR SP i.e., SPDR SP and Change Finance go up and down completely randomly.

Pair Corralation between SPDR SP and Change Finance

Given the investment horizon of 90 days SPDR SP 500 is expected to under-perform the Change Finance. In addition to that, SPDR SP is 1.1 times more volatile than Change Finance Diversified. It trades about -0.07 of its total potential returns per unit of risk. Change Finance Diversified is currently generating about -0.03 per unit of volatility. If you would invest  3,802  in Change Finance Diversified on December 18, 2024 and sell it today you would lose (81.00) from holding Change Finance Diversified or give up 2.13% 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.  Change Finance Diversified

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 latest stock price disturbance, may contribute to short-term losses for the investors.

Change Finance Diver

Risk-Adjusted Performance

Very Weak

Over the last 90 days Change Finance Diversified has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Change Finance is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with SPDR SP and Change Finance

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

The idea behind SPDR SP 500 and Change Finance Diversified 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.