Correlation Between SP 500 and SSgA SPDR

Can any of the company-specific risk be diversified away by investing in both SP 500 and SSgA SPDR 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 SSgA SPDR 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 SSgA SPDR ETFs, you can compare the effects of market volatilities on SP 500 and SSgA SPDR 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 SSgA SPDR. Check out your portfolio center. Please also check ongoing floating volatility patterns of SP 500 and SSgA SPDR.

Diversification Opportunities for SP 500 and SSgA SPDR

-0.65

Correlation Coefficient

SP 500  SSgA SPDR

Excellent diversification

The 3 months correlation between VILX and SSgA is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding SP 500 VIX and SSgA SPDR ETFs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SSgA SPDR ETFs 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 SSgA SPDR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SSgA SPDR ETFs has no effect on the direction of SP 500 i.e., SP 500 and SSgA SPDR go up and down completely randomly.

Pair Corralation between SP 500 and SSgA SPDR

Assuming the 90 days trading horizon SP 500 VIX is expected to generate 5.26 times more return on investment than SSgA SPDR. However, SP 500 is 5.26 times more volatile than SSgA SPDR ETFs. It trades about 0.05 of its potential returns per unit of risk. SSgA SPDR ETFs is currently generating about -0.11 per unit of risk. If you would invest  168,820  in SP 500 VIX on December 29, 2024 and sell it today you would earn a total of  5,873  from holding SP 500 VIX or generate 3.48% return on investment over 90 days.

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

SP 500 VIX  vs.  SSgA SPDR ETFs

SP 500 VIX

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SP 500 VIX are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, SP 500 unveiled solid returns over the last few months and may actually be approaching a breakup point.

SSgA SPDR ETFs

Risk-Adjusted Performance

Very Weak

Over the last 90 days SSgA SPDR ETFs 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 SSgA SPDR

The main advantage of trading using opposite SP 500 and SSgA SPDR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SP 500 position performs unexpectedly, SSgA SPDR 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 SSgA SPDR will offset losses from the drop in SSgA SPDR's long position.

The idea behind SP 500 VIX and SSgA SPDR ETFs 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.