Correlation Between SP 500 and SPDR SP

Can any of the company-specific risk be diversified away by investing in both SP 500 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 SP 500 and SPDR SP into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for SP 500 and SPDR SP

0.55

Correlation Coefficient

SP 500  SPDR SP

Very weak diversification

The 3 months correlation between VILX and SPDR is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding SP 500 VIX and SPDR SP Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Materials and SP 500 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 SP 500 VIX 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 Materials has no effect on the direction of SP 500 i.e., SP 500 and SPDR SP go up and down completely randomly.

Pair Corralation between SP 500 and SPDR SP

Assuming the 90 days trading horizon SP 500 VIX is expected to generate 15.04 times more return on investment than SPDR SP. However, SP 500 is 15.04 times more volatile than SPDR SP Materials. It trades about 0.08 of its potential returns per unit of risk. SPDR SP Materials is currently generating about -0.54 per unit of risk. If you would invest  161,099  in SP 500 VIX on October 6, 2024 and sell it today you would earn a total of  10,165  from holding SP 500 VIX or generate 6.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.0%
Values	Daily Returns

SP 500 VIX  vs.  SPDR SP Materials

SP 500 VIX

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SP 500 VIX has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Etf's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the exchange-traded fund private investors.

SPDR SP Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR SP Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Etf's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the exchange-traded fund private investors.

Pair Trading with SP 500 and SPDR SP

The main advantage of trading using opposite SP 500 and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SP 500 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 SP 500 VIX and SPDR SP Materials 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.