Correlation Between Vanguard USD and SPDR SP

Can any of the company-specific risk be diversified away by investing in both Vanguard USD 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 USD 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 USD Treasury and SPDR SP Financials, you can compare the effects of market volatilities on Vanguard USD 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 USD with a short position of SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard USD and SPDR SP.

Diversification Opportunities for Vanguard USD and SPDR SP

0.61

Correlation Coefficient

Vanguard USD  SPDR SP

Poor diversification

The 3 months correlation between Vanguard and SPDR is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard USD Treasury and SPDR SP Financials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Financials and Vanguard USD 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 USD Treasury 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 Financials has no effect on the direction of Vanguard USD i.e., Vanguard USD and SPDR SP go up and down completely randomly.

Pair Corralation between Vanguard USD and SPDR SP

Assuming the 90 days trading horizon Vanguard USD Treasury is expected to generate 0.33 times more return on investment than SPDR SP. However, Vanguard USD Treasury is 3.01 times less risky than SPDR SP. It trades about 0.19 of its potential returns per unit of risk. SPDR SP Financials is currently generating about 0.02 per unit of risk. If you would invest  2,246  in Vanguard USD Treasury on October 15, 2024 and sell it today you would earn a total of  85.00  from holding Vanguard USD Treasury or generate 3.78% return on investment over 90 days.

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

Vanguard USD Treasury  vs.  SPDR SP Financials

Vanguard USD Treasury

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard USD Treasury are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Vanguard USD is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

SPDR SP Financials

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Financials are ranked lower than 1 (%) 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 latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Vanguard USD and SPDR SP

The main advantage of trading using opposite Vanguard USD and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard USD 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 USD Treasury and SPDR SP Financials 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.