Correlation Between SPDR SP and Vanguard

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

By analyzing existing cross correlation between SPDR SP Technology and Vanguard SP 500, you can compare the effects of market volatilities on SPDR SP and Vanguard 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. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and Vanguard.

Diversification Opportunities for SPDR SP and Vanguard

0.83

Correlation Coefficient

SPDR SP  Vanguard

Very poor diversification

The 3 months correlation between SPDR and Vanguard is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Technology and Vanguard SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard SP 500 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 Technology are associated (or correlated) with Vanguard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard SP 500 has no effect on the direction of SPDR SP i.e., SPDR SP and Vanguard go up and down completely randomly.

Pair Corralation between SPDR SP and Vanguard

Assuming the 90 days trading horizon SPDR SP Technology is expected to generate 1.41 times more return on investment than Vanguard. However, SPDR SP is 1.41 times more volatile than Vanguard SP 500. It trades about 0.08 of its potential returns per unit of risk. Vanguard SP 500 is currently generating about 0.11 per unit of risk. If you would invest  8,889  in SPDR SP Technology on September 30, 2024 and sell it today you would earn a total of  3,507  from holding SPDR SP Technology or generate 39.45% return on investment over 90 days.

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

SPDR SP Technology  vs.  Vanguard SP 500

SPDR SP Technology

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Technology are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, SPDR SP is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Vanguard SP 500

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard SP 500 are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Vanguard may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with SPDR SP and Vanguard

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

The idea behind SPDR SP Technology and Vanguard SP 500 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.