Correlation Between Vanguard FTSE and SPDR SP

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

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

Diversification Opportunities for Vanguard FTSE and SPDR SP

-0.53

Correlation Coefficient

Vanguard FTSE  SPDR SP

Excellent diversification

The 3 months correlation between Vanguard and SPDR is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard FTSE Developed and SPDR SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP 500 and Vanguard FTSE 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 FTSE Developed are associated (or correlated) with SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP 500 has no effect on the direction of Vanguard FTSE i.e., Vanguard FTSE and SPDR SP go up and down completely randomly.

Pair Corralation between Vanguard FTSE and SPDR SP

Considering the 90-day investment horizon Vanguard FTSE Developed is expected to under-perform the SPDR SP. In addition to that, Vanguard FTSE is 1.14 times more volatile than SPDR SP 500. It trades about -0.04 of its total potential returns per unit of risk. SPDR SP 500 is currently generating about 0.19 per unit of volatility. If you would invest  55,738  in SPDR SP 500 on September 12, 2024 and sell it today you would earn a total of  4,542  from holding SPDR SP 500 or generate 8.15% return on investment over 90 days.

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

Vanguard FTSE Developed  vs.  SPDR SP 500

Vanguard FTSE Developed

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard FTSE Developed has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, Vanguard FTSE is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

SPDR SP 500

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP 500 are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vanguard FTSE and SPDR SP

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

The idea behind Vanguard FTSE Developed and SPDR 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.

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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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.