Correlation Between Vanguard Small and SPDR SSgA

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

By analyzing existing cross correlation between Vanguard Small Cap Index and SPDR SSgA Ultra, you can compare the effects of market volatilities on Vanguard Small and SPDR SSgA 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 Vanguard Small with a short position of SPDR SSgA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small and SPDR SSgA.

Diversification Opportunities for Vanguard Small and SPDR SSgA

-0.7

Correlation Coefficient

Vanguard Small  SPDR SSgA

Excellent diversification

The 3 months correlation between Vanguard and SPDR is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and SPDR SSgA Ultra in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SSgA Ultra and Vanguard Small 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 Vanguard Small Cap Index are associated (or correlated) with SPDR SSgA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SSgA Ultra has no effect on the direction of Vanguard Small i.e., Vanguard Small and SPDR SSgA go up and down completely randomly.

Pair Corralation between Vanguard Small and SPDR SSgA

Allowing for the 90-day total investment horizon Vanguard Small Cap Index is expected to under-perform the SPDR SSgA. In addition to that, Vanguard Small is 11.66 times more volatile than SPDR SSgA Ultra. It trades about -0.09 of its total potential returns per unit of risk. SPDR SSgA Ultra is currently generating about 0.19 per unit of volatility. If you would invest  4,006  in SPDR SSgA Ultra on December 27, 2024 and sell it today you would earn a total of  46.00  from holding SPDR SSgA Ultra or generate 1.15% return on investment over 90 days.

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

Vanguard Small Cap Index  vs.  SPDR SSgA Ultra

Vanguard Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Small Cap Index has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Etf's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

SPDR SSgA Ultra

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SSgA Ultra are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, SPDR SSgA is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Vanguard Small and SPDR SSgA

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

The idea behind Vanguard Small Cap Index and SPDR SSgA Ultra 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.